Taxation Consequences of the Legislative Changes in the Business Taxation Scheme

Jesper Skov

Student thesis: Master thesis

Abstract

This thesis seeks to determine the consequences inferred by the legislative changes to the Business Taxation Scheme by law no. 922 of September 16th 2014. The purpose of law no. 922 of September 16th 2014 was to regulate the unintended exploitation of the Business Taxation Scheme. It was therefore, passed in order to neutralize the economic advantages self-employed business owners were able to gain by exploiting the legislation. The unintended exploitation lied in three different dispositions. The dispositions was: depositing private liabilities into the Business Taxation Scheme, in order to pay off the debt with business funds and furthermore get a larger tax deduction for related interest expenses. The second exploit was, that selfemployed business owners were able to put the business’ assets as collateral for their private debt, and thereby avoid redrawing company funds to finance private consumption. Lastly, self-employed business owners exploited the interest correction, which allowed them to save interest deduction in their private economy, this is largely connected to the depositing of private debt liabilities. The consequences of law no. 922 of September 16th 2014 on the above mentioned dispositions, is that the self-employed no longer will be able build up a saving with a temporary taxation, as long as the deposit account is negative. Furthermore, the rate of the interest correction has been raised by 3 %, making it less attractive to insert private debt into the company. If the self-employed business owner has set collateral with the business’ assets for their own debt, the lowest value of either the debt or the set collateral will be transferred to the self-employed, resulting in an advanced taxation of the business’ profits. The range of the consequences are however widespread, as self-employed risks being affected by the legislative changes, even though they have abided the law. An example of this is, when the self-employed has set liquid collateral or is renting a former residential property to a third party. There is an array of consequences that is said to neutralize the unintended usage of the Business Taxation Scheme. Throughout the thesis, it is shown how the consequences affect self-employed. However, the Business Taxation Scheme is still a highly desirable taxation form, as long as the legislation is followed as prescribed.

EducationsMSc in Auditing, (Graduate Programme) Final Thesis
LanguageDanish
Publication date2016
Number of pages81