Danish Business Tax Scheme: Tax consequences of the use of the Danish Business Tax Scheme resulting from Danish Act No 992 of 16 September 2014 and Danish Act No 652 of 8 June 2016

Camilla Kofod Rasmussen & Lotte Kristine Valentin Hansen

Student thesis: Master thesis

Abstract

The purpose of this thesis is to clarify the consequences of Danish Act No 992 of 16 September 2014 and Danish Act No 652 of 8 June 2016 relating to self-employed individuals taxed under the Danish Business Tax Scheme. The amendments were intended to prevent unintentional use of the Danish Business Tax Scheme by self-employed individuals who have contributed personal debt or provided the enterprise’s assets as security for debt outside the Scheme. Under the Danish Business Tax Scheme, interest expenses are fully deductible, and repayment of debt may take place using low-rate taxed funds. Previously, self-employed individuals could achieve tax savings by contributing personal debt into the Danish Business Tax Scheme if the interest correction could not set off the included interest expenses. Prior to the passing of the amendments, self-employed individuals had unlimited access to providing assets under the Danish Business Tax Scheme as security for debt outside the Scheme. This implied that selfemployed individuals could raise debt in the private sphere against providing low-rate taxed funds under the Scheme as security. In this manner, self-employed individuals could finance private consumption by the loan proceeds and accumulate the profit of the enterprise under the Scheme at a low preliminary corporate tax rate. The amendments have implied financial consequences for self-employed individuals who used the Danish Business Tax Scheme contrary to the original intention of the Scheme. The amendments imply that selfemployed individuals may risk being restricted in their possibility of accumulating funds if the deposit account of the enterprise is negative or if security has been provided for debt outside the Scheme. The rules relating to enterprises with a negative deposit account and capital income tax base were tightened. This implied an increase in the interest correction rate of 3 percentage points. The amendments included mitigating transitional rules providing self-employed individuals with the possibility of, in some areas, adjusting any transactions accordingly. It depends on an assessment as to whether a transitional period of three years is adequate compared to the significant changes made to the Danish Business Tax Act.

EducationsMSc in Auditing, (Graduate Programme) Final Thesis
LanguageDanish
Publication date2017
Number of pages120
SupervisorsHenrik Nielsen