Recurring Payments in Share Deals

Peter Lund Christiansen

Student thesis: Master executive thesis


This thesis concerns the tax treatment of recurring payments and earn-outs for tax purposes in connection with share deals. In share deals the purchase price is often adjusted for various reasons. Depending on the specifications and structure of the adjustment a special set of rules in the Danish Tax Assessment Act Section 12 B regarding recurring payments may apply. If adjustments of the purchase price are treated as recurring payments the expected net present value of the payment must be capitalised and taxed as the underlying asset – in this case according to the Danish Capital Gains Tax Act. Normally, sale of shares is tax exempt provided that the ownership stake exceeds 10%. If the recurring payments subsequently exceeds the capitalised amount, such exceeding payments will be taxable for seller and tax deductible for the buyer. Accordingly, part of the gain may become taxable instead of exempt under the normal rules. This makes the qualification of the adjustment very important and uncertainties relevant to investigate. In the first section of the thesis it is analysed to which extend adjustments of the purchase price are comprised by the rules regarding recurring payments, including adjustments based on the performance of the transferred enterprise, outcome of legal proceedings, rulings from authorities etc. Furthermore, it is analysed how warranty payments, reduction of the purchase price etc. are treated. In the second and third sections it is analysed if one adjustment of the purchase price is considered a recurring payment and if purchase price adjustments – which may result in both an upwards and downwards adjustment – are comprised by the rules. Finally, due to the administrative practise regarding singular adjustments of the purchase price, it is analysed in the fourth section to which extend tax payers will always be comprised by the rules in case there are more than one purchase price adjustment.

EducationsMaster i Skat, (Executive Master Programme) Final Thesis
Publication date2018
Number of pages61