DENMARK Law and Practice Contributed by: Simon Milthers, Thomas Bøgedal Kristiansen, Mikkel Friis Rossa and Emil Steenberg, Bech-Bruun
5.2 Tax Consequences Spin-offs in Denmark can be structured as a tax- free transaction at both the corporate level and the shareholders’ level, provided certain require- ments are met. These tax-free spin-offs are typi- cally executed as tax-exempt demergers. The key requirements for a tax-exempt spin-off in Denmark are as follows. • The remuneration must be in the form of shares in the receiving company, with a pos- sible tax compensation amount. • The spin-off date should be set as the first day of the receiving company’s financial year to ensure it has a retrospective effect. How- ever, special rules apply for companies com- prised by the mandatory Danish joint taxation and in the case of cross-border demergers. • The assets and liabilities transferred to the new company must constitute a separate business unit if the company subject to the spin-off is to continue to exist for tax and legal purposes. • The company contributing the assets as well as the company receiving the assets must be a Danish A/S or ApS. Alternatively, it must be a “company from a[n EU] member state” as described in Article 3 of Council Directive 90/434/EEC and not be considered transpar- ent for Danish tax purposes. • The spin-off must be registered in the Danish Tax Agency (DTA)’s e-filing system no later than one month after the decision to proceed with the spin-off has been made. As a main rule, the implementation of a tax- exempt demerger is conditioned upon a pre- clearance from the Danish Tax Authorities. How- ever, subject to certain conditions, a tax-exempt demerger may also be implemented without a pre-clearance. Hence, certainty of the Danish
tax consequences should be available prior to the transaction. The additional specific require- ments include the following. • A holding period of three years applies, dur- ing which shares in the receiving company cannot be sold following the tax-exempt demerger. This rule applies to companies that own 10 % or more of the share capital in one of the participating companies following the demerger and does not apply to shares owned by individuals. • The demerger must be executed at fair mar- ket value. • The ratio of debt to assets in the receiving company must match the ratio of debt to assets in the transferring company (“balance adjustment rule”). This often necessitates obtaining a binding ruling on the valuation. In certain cases, a tax-exempt demerger may not be possible without obtaining permission. There are four specific exceptions to this rule, as follows: • exception 1 – if the transferring company has multiple shareholders, and one or several of these shareholders have been participants for less than three years without having held the majority of the votes, and these shareholders collectively hold the majority of the votes in the receiving company after the transaction; • exception 2 – where a demerger is carried out as a partial demerger, and a shareholder who carries on business of buying and selling shares in the transferring company is entitled to receive tax-free dividends on the shares in the transferring company and is remuner- ated with something other than shares in the receiving company; • exception 3 – if a shareholder with controlling interest in the receiving company is not based
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