The Danish Business Tax Scheme: Implementation of New Rules in the Danish Business Tax Law

Kasper Rasmussen & Stefan Buch Henriksen

Student thesis: Master thesis


In 1987, the Danish business tax scheme was established. The result was a taxation for personal business owners comparable to the taxation of limited companies, with the opportunity to deduct financial expenses with full value and it became possible to utilize profits for less profit giving years. The tax scheme today is an alternative to a regular taxation and gives the taxable person more opportunities within investing in their own business. The solution has had its challenges along the way, and one of those challenges was an unintended use of the Danish business tax scheme. The unintended usage was caused by putting private debt into the solution and thereby paying private debt with profits in the solution, which was only taxed with the company tax percentage. Furthermore, it was possible to use assets in the business tax scheme to guarantee for private debt without any tax consequences. The Danish government wanted to stop the unintended usage by implementing laws stating, that such actions would cause a withdrawal in the business tax scheme, thus resulting in taxation as personal income. Furthermore, the government wanted to make it less advantageous to put private debt into the solution. They did that by increasing the interest correction rate and preventing the business owners from saving profits, if their account of deposit was negative. A negative deposit account is equal to a deposit of private debt. The law was implemented in 2014, and it caused a lot of criticism from accountants, auditors and specialists. The law was not expressed very clearly and that caused a lot of confusion particularly regarding how to interpret the law regarding the guarantees. That led to a legally binding statement from Skatterådet (the Danish tax council) saying, that a guarantee for private debt with assets in a business should lead to a withdrawal in the business tax scheme equal to if the person withdrew money to himself or put private debt into the business tax scheme. That could lead to taxation of saved profits and even a negative deposit account. That conclusion was in contradistinction to the former practice from the Danish tax authorities. The legally binding statement led to a new law draft called L123. One of the features in it was a clearer expression of how the guarantees should be handled. L123 was implemented in 2016 and ratified the conclusion from Skatterådet regarding the guarantees and the handling of them. The result of the law amendments are a juxtaposition between withdrawals, putting private debt into the business tax scheme and having a guarantee for private debt with assets in the business. Furthermore, the law amendments led to a stricter approach to private debt and the business tax scheme. As of today, it is not possible to guarantee for private debt with assets in the business without tax consequences. The only way to avoid the taxation is to fill out the tax return illegally. Practice in the years to come will show, how different set-ups will be qualified and if those set-ups will be included in the new § 4 b in the business tax scheme law.

EducationsMSc in Auditing, (Graduate Programme) Final Thesis
Publication date2019
Number of pages122