Fradrag for udgifter til interne lønninger efter driftsomkostningsbegrebet i statsskattelovens § 6, stk. 1, litra a.

Abstract

The calculation of income tax is, for Danish tax purposes, based on the net income. Net income is the difference between the income that is taxable under sec. 4 and 5 of the Danish general Income Tax Act (the “Income Tax Act”, or in Danish “Statsskatteloven”) and the deductible expenses under sec. 6 of the Income Tax Act or other provisions in the Danish tax legislation.
This thesis specifically considers the deduction of internal labor costs for income tax purposes under paragraph 6, clause 1, subsection a and paragraph 6, clause 2 of the Income Tax Act. Despite the Income Tax Act being more than 100 years old, the deduction of operating expenses has attracted significant attention from companies and advisors, as well as from the tax authorities, in recent years. The definition of deductible operating costs has been the subject of much case law, and has been continually revised by amending and supplementary legislation. The evolution of the definition of operating costs and the accompanying analysis has given rise to numerous problems regarding the delineation and interpretation.
The object of this thesis is to analyse and challenge the Danish Tax Authorities’ published precedent for the tax deductibility of the companies’ internal labor costs. The basis of this thesis comes from the decisions made by Danish High Courts (in Danish “Østre Landsret”) on 1 June 2016 published under SKM2016.551.ØLR and SKM2016.569.ØLR, where the Danish High Courts concluded that companies’ internal labor costs in connection with acquisitions was non-deductible.
The aim of this thesis is not to outline a new notion of what deductible operation costs ought to be, but instead evaluate the existing notion as found in section 6 of the Income Tax Act and determine whether there is a need for alteration of the rules regulating the right to deduct operating costs.
This thesis considers the tax treatment of internal labor costs based on the complex distinction between deductible operating costs and the non-deductible expenses as they relate to new business establishment and the expansion of existing business activity. By applying the legal judicial method (in Danish: den retsdogmatiske metode), this thesis concludes that the internal labor costs held by the companies in relation to expansion of an existing business activities is non-deductible as stated by the Danish High Courts.
Based on the above, the thesis finally concludes that the notion of deductible operating costs demands a revision in order to simplify the treatment of deduction of not only internal labor costs, but also general operating expenses. It is therefore proposed in chapter 7 to adopt a general right to deduct all types of expenses in relation to new business establishment and extension of an existing business activity.