Taxation of partners pursuant to "Ligningslovens" § 4

Patrick Grønberg & Frederik Regin Brodersen

Student thesis: Master thesis

Abstract

On January 1st, 2018, a new law in “Ligningsloven” § 4 regarding the taxation of participants in transparent companies took effect. The new law means, that participants in limited liability partnership companies are no longer considered self-employed. The new law states that the partners in these companies have to have significant influence and financial risk, to be considered self-employed. One consequence of the new law is, that partners in for example audit companies will no longer be subject to the same taxation as other Danish companies, because they no longer can use the Danish law called “virksomhedsordningen”, which allows self-employed individuals to be subject to the same taxation as Danish companies. The new law raises several questions, as to who will be considered self-employed, and what the financial consequences for the individuals that are no longer considered self-employed will be. In the Danish law there is no exact definition that determines whether an individual is self-employed or an employee, but it instead states a number of criteria that can help determine if an individual should be considered self-employed or not. In this thesis, the main criteria are discussed, and prior jurisprudence is evaluated, in order to find a common thread in the prior court and tax council decisions. The structure of the limited liability partnership companies is examined, to make it clear how the financial risk of the partners can be seen in this type of company. The structure is built such that none of the partners are liable for more than their capital contributions, therefore it doesn’t seem like they have a large financial risk in their participation in the company. “Virksomhedsordningen” contains major advantages towards the taxation in Denmark. The partners that use “virksomhedsordningen” end with an effective taxation around 40 %, while partners that cannot use it risk a taxation of 60 %. Furthermore, the partners that use “virksomhedsordningen” are allowed to invest company profits after having paid the Danish company tax of 22 %. The partners in limited liability partnership companies have an economic interest in retaining access to “virksomhedsordningen”, since it will most likely significantly influence their disposable income. As a consequence of this, partners will probably try to prove that they have significant influence and financial risk, in co-owning and running these kinds of businesses. The major question is, whether the new law in “Ligningsloven” will change the way the Danish tax authorities assesses and decides, whether partners in limited liability partnership companies should be considered self-employed or not. This master’s thesis suggests that the answer is probably “No”

EducationsMSc in Auditing, (Graduate Programme) Final Thesis
LanguageDanish
Publication date2018
Number of pages103