Conditional Legalization of Shareholder Loans: The Purpose Behind the Danish Companies and Tax Act

Sarah Harbi & Nila Mansoor

Student thesis: Master thesis


The objective for this thesis is to analyse and identify the purpose behind the Danish regulations on shareholder loans. The focus is on the Danish Companies and Tax Act. Throughout time shareholder loans have been both legal and illegal. In 1982 a total ban against shareholder loans was introduced. This ban was proposed abolished under the reformation of the Companies Act in 2009. It was not passed; instead the total ban was sustained. Meanwhile it was detected that there has been an increase in illegal shareholder loans. The outstanding collateral of illegal shareholder loans was found to be DKK 4 billions in 2010. As a consequence the Danish Tax Act adopted in 2012 a new paragraph, LL §16 E, to reduce the number of illegal shareholder loans. However, shareholder loans did not remain illegal. With law no. 1547 of 13 December 2016 shareholder loan were made legal under certain conditions. Nevertheless, LL §16 E did not get abolished. The thesis will take its starting point with a presentation of the shareholder rules in the Danish Company and Tax Act. Subsequently, the official purpose of the regulations is analysed, as they seem to be conflicting. Furthermore LL §16 E is assessed to be in conflict with the EU law. LL §16 E causes a violation in regards to article 49 TEUF due to a domestic company’s right to deduct tax, and the lack of the same for an international company. LL §16 E does not meet the general requirements mentioned in C-55/94 Gebhard and is consequently not EU-compatible. Besides being contrary to the rules in the EU, LL §16 E also seems to contradict the rules in the Danish Corporate act in regards to the repayment obligation. Nevertheless, the main focus of this thesis is to detect the real purpose behind the Danish regulations on shareholder loan. LL §16 E was introduced, among other purposes, to reduce the great amount of illegal shareholder loans. Since they are legal now the purpose of maintaining LL §16 E is problematic. The official purpose of the legalisation can actually not be attained due to LL §16 E. Indeed, LL §16 E restrains the purpose of the legalisation even though it was inserted as a supporting provision to the Company Act. The legislature’s alleged purpose behind the rules is therefore analysed. This analysis reveals that fiscal considerations most likely are the real purpose behind the regulations. In this case the Company and Tax act is no longer conflicting. Instead they seem to collaborate and complement each other in reaching this purpose. The legalization does not lead to the disharmony, but instead emphasizes the underlying fiscal considerations.

EducationsMSc in Auditing, (Graduate Programme) Final Thesis
Publication date2017
Number of pages120
SupervisorsSøren Friis Hansen