The Danish Corporate Tax Act Section 2 D: A Protective Rule Against Companies’ Circumvention of Danish Dividend Taxation

Sandra Damgaard

Student thesis: Master thesis

Abstract

The thesis focuses on analyzing whether the existing asymmetric taxation of capital gains and dividends are rooted in economic conditions or exclusively politically determined. Further, it is desired to derive existing law in relation to the Danish corporate tax act section 2 D and conclude the legal and economic disadvantages the Danish corporate tax act section 2 D causes. In Denmark, the taxation on companies’ capital gains and dividends are not fully harmonized. Some capital gains and dividends are therefore taxed asymmetric, which gives some companies an incentive to avoid dividends and instead receive other remunerations, which will be taxed as capital gains, because capital gains are taxed less heavily than dividends. In order to prevent these companies in circumventing the Danish dividend taxation, by making some kind of restructuring, the legislature adopted the Danish corporate tax act section 2 D in 2012, which became expanded in 2014, since legislature in early summer 2013 discovered that the 2012 version was not wide enough to prevent all circumvention options. The Danish corporate tax act section 2 D was adopted after SKAT discovered that companies could avoid dividend taxation by making a tax-free exchange of shares and a qualification switch, and its aim is exactly to prevent companies in circumventing the Danish dividend taxation. The Danish corporate tax act section 2 D applies in three situations, if the provision’s other conditions is met, and if just one of the taxpayer that are included in the below mentioned situations are resident in Denmark: 1. Intra-group share sale, 2. Sales to shell companies, 3. Taxable merger or demerger. The legal consequence of being covered by the Danish corporate tax act section 2 D is that the part of the remuneration in other than shares is reclassified as dividends and must be taxed as dividends. In connection with the Danish corporate tax act section 2 D’s adoption, the provision was criticized for being too broadly formulated, leading to foreign investment in Denmark would fall, cause an effective taxation of over 100 per cent etc. These criticisms were repeatedly rejected by the legislature.

EducationsMSc in Commercial Law, (Graduate Programme) Final Thesis
LanguageDanish
Publication date2016
Number of pages84
SupervisorsMichael Tell