National Joint Taxation

Abstract

The purpose of my thesis is to examine the current rules in the matter of joint taxation in Denmark. This thesis will analyze the rules regarding group companies in Denmark. The rules regarding group companies are specified by conditions in the Danish Corporate Tax Act section 31, which lists conditions for individual companies in Denmark to qualify as a group company. The general rule is that a company is a part of the group company if the parent company has control over the subsidiary company. Since the regulations introduced in law no. 426 dated July 6th 2005, Danish group companies have been forced to a mandatory joint taxation in the national joint taxation rules. An exception to this rule is the territorial principle stated in section 8 paragraph 2 the Danish Corporate Tax Act, which implies that income by a Danish company through either real estate or permanent establishment abroad should not be included in the joint taxation income. The general benefit of joint taxation is to apply the losses from your affiliated group companies to offset other group company’s positive income and postpone taxation or keep liquidity inside the group company by paying affiliated company’s instead of the Danish tax authorities. The taxable income in the group company is based upon the individual company’s taxable income. Another benefit in joint taxation is to offset taxable losses from previous years within the group company. With the passing of law no. 591 dated 18th June 2012, one of the most significant elements was the introduction of limitation of a group company’s tax losses from previous years. The law introduced a limitation which included all taxable income above DKK 7.500.000 (2010 number) within the group company would be subject to a limitation of 60 % of the tax losses above DKK 7.500.000 (2010 number) from previous year. Other than the limitation of offsetting losses, the law also introduced jointly and severally liabilities for the total corporate tax, withholding tax interest, royalties and dividends. The thesis is concluded with a case study the calculation of the taxable income in the joint taxation regarding two group companies with the same structure however with different management.