The main purpose of this thesis is an investigation of the fiscal rules regarding the taxation of Controlled Financial Company, or CFC’s, in the light of principle of free movement in the European Union. The thesis will view the Danish rules only, cf. Corporate Tax Act (CTA) art. 32, with extended focus on the second condition of the exemption rule, cf. CTA art. 32, paragraph 2. The Danish CTA art. 32 was first introduced in 1995. The main purpose of the regulation was a preven-tion of Danish companies from transferring their financial assets to countries with more favorable taxa-tion schemes. Since the introduction, the regulation has been altered several times, for example in 2007 when the rules were modified radically to, in the eyes of the legislator, be conform with the EU. The exemption rule was introduced in 2002 as a consequence of criticism of the discrimination of financial companies. The rule excludes the income of financial subsidiaries from being taxed in Denmark with the Danish parent company, when certain conditions regarding the subsidiary’s inner structure are met. Herein lies the narrow condition of local costumers, which is in the scope of this thesis. This particular condition is deemed to have a cross-border effect that can restrict companies with regard to the principles of free movement. Based on this the condition requires an appraisal according to EU law. The typical situation governed by CTA art. 32 is when a Danish parent company controls another com-pany, the subsidiary. Under certain conditions, relating to the subsidiary’s type of income and assets, the parent company can be forced to include the subsidiary’s income to taxation in Denmark. It does not matter whether the subsidiary is Danish or foreign, the rules apply in each situation as a consequence of the ECJ judgment, C-196/04 Cadbury Schweppes. These differences in EU taxation create a lot of competition for the companies and a lot of speculation on the capital market with regard to which country is most attractive to invest in, when the outcome is gaining more profit. At the end the government will be left with less tax revenue, which clarifies the importance of national tax protection rules to prevent arbitration. In a logical sense, a corporation will always place the capital in countries with a high return, which is also a consequence of a lower tax rate in the other country. Therefore, when a Danish financial company is established in another EU country, it has to consider the possibility of CFC-taxation, and not only the expected return. Though, the incen-tives to invest in other countries derive from more than just a low corporate tax rate and a high return, which also depends on the inner structure of the corporation, the clients and the competitors. This clar-ifies the true incentives to the establishment, which are not always based on a lower tax rate as legislators might believe.
|Educations||MSc in Commercial Law, (Graduate Programme) Final Thesis|
|Number of pages||88|