Mark-to-market Taxation of Real Estate

Christian Theis Nygaard & Romanas Markovas

Student thesis: Master thesis


On the 10th of October 2020, the Danish Government presented an agreement which would give right to an early retirement. This agreement was translated into a bill, which was adopted on the 18th of November 2020 and entered into force on 1 January 2021. In the agreement, it was proposed, among other things, that the bill should be financed by changing the taxation of real estate from the realization principle to the mark-to-market (MTM) principle. The reason for the proposal is, primarily, to finance the right to early retirement, but also, secondarily, to put an end to the method where an increase in value of real estate in Denmark is never taxed, due to foreign companies sells the company instead. This thesis aims to investigate the consequences for the companies, that will be affected of the introduction of the MTM, with focus on the implementation of the rules as well as the spin-off effects that the introduction of the MTM may entail. By analyzing the available data and our own constructed cases, we found that introduction of MTM will put an end to untaxed value increases, but most likely not through ongoing taxation as the term MTM suggests, but when real estate companies are sold. The effect of implementation of MTM, will most likely be unnoticeable through the first couple of years of its existence. This is due to the high input values, that are to be calculated when the companies enter into the MTM principle. The deferred tax, difference between cost price and the input value, will continue to be untaxed and carry forward until the sale of the real estate. We also found that some companies may be hit harder than others, and some that might need to rethink their financing situation. Those, that previously could make tax depreciation will lose this opportunity and may also be hit by corporate tax from the property’s value increase. It is our view, that the introduction of MTM principle, in total will have a negative impact for companies. An increased outgoing cash flow for companies as well as an increased administrative burden is expected.

EducationsMSc in Auditing, (Graduate Programme) Final Thesis
Publication date2021
Number of pages110