On 6 November, the bill on implementation of the Danish CFC rules was put forward in Parliament. The bill is largely identical with the draft bill sent in public consultation on 13 September with a few technical amendments. With effect as from income years beginning 1 January 2020 or later, the Danish CFC rules are proposed adjusted in order to align with the ATAD Directives.
The rules are proposed to have a broad application and are expected to both increase tax revenues and increase the administrative burdens for Danish companies. The main changes include:
― Going forward, the CFC rules are applicable to all independent taxpayers and permanent establishments.
― The control definition is extended to cover more than 50% "influence" in the form of votes, shares and right to income. Connected persons' influence is included for threshold purposes.
― The income test is reduced to a requirement of 1/3 CFC income only (as opposed to the current 50%), and the current 10% asset test is removed.
― Going forward, other income from intangible assets should be considered CFC income, if the asset has been acquired from a country different from the one in which the subsidiary is tax resident or has been developed through activities carried out by connected persons in a different country.
― It may consequently be necessary to separate income allocable to intangible assets into good and bad elements for future CFC taxation purposes.
― It will be possible to obtain a step-up in values of existing intangible assets subject to certain requirements, and certain indirectly acquired intangible assets will also be exempt.
― CFC income also covers income from invoicing companies (purchase from and sale to group companies) contributing with low financial impact.
― The current lack of exemptions for both EU/EEA resident companies and companies with actual substance is maintained. The consistency with the Directive and the EU law in this respect is doubtful.
― The existing fictitious disposal taxation is suggested expanded to include a fictitious disposal of all CFC assets when the ownership of a subsidiary is reduced/disposed of.
― It will be possible to choose to include only subsidiaries' CFC income instead of the total taxable income of the Danish income. The group must decide this in connection with the tax return, and the decision is binding for five years.
The proposed rules will increase the complexity drastically of the already complex CFC regime, and companies are urged to consider their existing structures and how the new rules will impact the business and how compliance will be assured.
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