Kapitalfonde: Hvorfor er visse af investorerne i danske kapitalfonde ikke skattepligtige af deres aktieavancer, og hvorledes kan deres skattemæssige status ændres?

Julie Rose Herskind & Cathrine Malene Nauta Hemmingsen

Student thesis: Master thesis


In this thesis, we wanted to examine why investors in Danish private equity funds are not liable to pay tax on their share profit as well as examine how this tax-related circumstance can be al-tered. In response to our problem statement, we have examined current Danish legislation regarding capital gains tax for persons and companies with residence in either Denmark or abroad. In addi-tion, we have examined provisions regarding persons and companies with full and limited taxa-tion liability including provisions regarding the fact that practicing business must occur from a permanent establishment for persons and companies that have limited tax liability. As basis for this examination, we have used both Danish legislation and the OECD’s model agreement. From the above-mentioned analysis, we discovered that in Denmark, we distinguish between eq-uity investments and tradable investments. Based on Danish legislation and the model agreement of the OECD, we found that persons or companies have limited tax liability to Denmark on their share profit if the investment in shares can be considered as practicing business, as well as if the shares are attributable to a permanent establishment in this country. Pursuant to Danish legisla-tion, investments in tradable investments alone may be considered practicing business, and only these investments are attributable to a permanent establishment. This distinction between equity investment and tradable investments is however not in accordance with the OECD’s model agreement. Based on a number of adjudications, we have determined that the shares of Danish private equity funds are considered equity investments, meaning that Danish investors are not taxed on share profit if they have owned the shares for more than three years. Foreign investors are not taxed either as their shares are not attributable to a permanent establishment in Denmark. On the basis of the Danish distinction between equity investments and tradable investments, we have examined the reason why the shares of Danish private equity funds are not considered trad-able investments. Based on case law, we found that private equity funds specifically do not meet the conditions stating that the investment strategy must be short-term, that share trading must have a high turnover rate and that the share trading must have a certain system and regularity. Furthermore, we found that the actual purpose of the investments was not of vital significance for the trade assessment. In the final part of the thesis, we have examined what significance an expansion of either the trade concept or the permanent establishment concept would have in regards to the taxation of Danish and foreign investors. We concluded that an expansion of either concept will lead to the taxation of foreign investors, as the condition regarding the practice of business as well as the condition regarding permanent establishment in Denmark have both been met. However, it should be pointed out that an expansion of the concept of permanent establishment most likely will lead to the investors hanging on to the shares for at least three years thereby avoiding Danish taxation. If the goal is to make investors liable for tax, an expansion of the trade concept is there-fore the most appropriate. It is imaginable that an expansion of the trade concept will results in the investors no longer hav-ing incentive to invest in Danish private equity funds. Therefore, it was relevant to find out whether foreign investors in particular are able to avoid Danish taxation by investing in a foreign private equity fund with Danish portfolio enterprises and a Danish management company. We concluded that a foreign private equity fund’s Danish management company according to set conditions is included in the so-called agent rule, governed by article 5 of the OECD’s model agreement. Therefore, the Danish management company implies permanent establishment under the agent rule for the foreign investors, resulting in the investors having limited tax liability to Denmark. A possible expansion of the trade concept would compel foreign investors to invest in Denmark through a foreign private equity fund with a foreign management company in order to avoid Da-nish taxation.

EducationsMSc in Auditing, (Graduate Programme) Final Thesis
Publication date2008
Number of pages122