Deduction for Operating Expenses - with Particular Focus on Salary Expenses

Rasmus Stanley Jørgensen

Student thesis: Master executive thesis

Abstract

The dissertation explores deduction for operation expenses with a particular focus on salary expenses. The dissertation is based on the more than 100 year old State Tax Act, which has been interpreted and analyzed numerous times through practice in line with the development of society. It is essential for deduction of operating expenses under § 6 (1) (a) of the State Tax Act, that the expenses are incurred to acquire, secure and maintain income. Otherwise, there is an establishment or extension of the income base, after which no deduction for operating expenses can be obtained. In relation to salary expenses, recent practice has concluded that salary expenses also should be treated according to the same rules. In the summer of 2017, the Supreme Court took a stand for deduction of salary expense in two litigations. The salary expenses incurred for the expansion of companies, could not be deducted in accordance with § 6 (1) (a) of the State Tax Act. As a consequence of the judgments, the Ministry of Taxation introduced a readmission to the principles of § 6 (1) (a) of the State Tax Act. With the introduction of the Tax Assessment Act § 8N, companies now have the opportunity to deduct salary expenses etc., regardless of whether the expenditure relates to the income acquisition or the income basis. The Tax Assessment Act paragraph 8N is only a relaxation in terms of salary expenses costs and not a relaxation for all operating expenses. The analysis concludes that companies should still pay attention to salary expenses in certain cases. For example when using salary expenses on construction of assets, the analysis has concluded that there will be deduction according to Tax Assessment Act § 8N. However the legislator has made a comment on the bill, that salary expenses should follow previously practice of activation of expenses. Hence it will be with some risk of interpretation to deduct these specific salary expenses. Tax Assessment Act § 8N also provides deduction for other expenses related to employment. However it leaves room for interpretation, as the provision does not leave an exhaustive list of these expenses. The expenses must be incurred by the correct cost barrier. Hence companies must ensure that salary expenses are incurred in that company, which have benefited from these expenses. The analysis further concludes that the provision in Tax Assessment Act § 8N (2), may be contrary to European Union law in relation to freedom of establishment. There may be discrimination against deduction of corresponding payments. The discrimination concerns joint taxation relationships between pure Danish groups and foreign groups. According to Tax Assessment Act § 8N (2), the right to deduct corresponding payment, is conditioned by a choice of international joint taxation by the foreign group. The introduction of Tax Assessment Act § 8N has substantially reduced the principles of § 6 of the State Tax Act. As a result companies can deduct salary expenses and other expenses related hereto in an easy and manageable way. However there are still a number of areas, where there can be conflicts of interpretation in the future.

EducationsMaster i Skat, (Executive Master Programme) Final Thesis
LanguageDanish
Publication date2018
Number of pages48
SupervisorsJane Bolander