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Anti-avoidance framework

Regulation

What legislative and regulatory initiatives has the government taken to combat tax avoidance in your jurisdiction?

Combating tax abuse and avoidance has always been (and remains) a major focus for the Danish government and numerous measures have been implemented over time. Accordingly, Denmark had many anti-avoidance rules in place when the Organisation for Economic Cooperation and Development (OECD) Base Erosion and Profit Shifting (BEPS) Action Plan was completed in 2015.

The following noteworthy anti-avoidance rules are largely covered by the BEPS Action Plan:

  • The adoption of a general anti-abuse rule in Section 3 of the Tax Assessment Act that applies from May 1 2015, denying tax treaty and EU directive benefits in certain cases.
  • Taxation of hybrid entities, taxation of hybrid financing instruments and re-classification of certain transparent entities for Danish tax purposes as set out in Sections 2A to 2C of the Corporate Income Tax Act (BEPS Action 2).
  • Controlled foreign company taxation rules as set out in Section 32 of the Corporate Income Tax Act and Sections 16H to 16J of the Assessment Act (BEPS Action 3).
  • Rules on thin capitalisation and interest reductions as set out in Sections 11, 11B and 11C of the Corporate Income Tax Act (BEPS Action 4).
  • Certain anti-avoidance rules countering avoidance of dividend tax – for instance, Section 2D of the Corporate Income Tax Act and Section 2 of the Tax at Source Act (BEPS Action 5).
  • Danish dividend withholding tax on dividend distributions running through conduit companies as set out in Section 2(1)(c) of the Corporate Income Tax Act (BEPS Action 6).
  • Country-by-country reporting (BEPS Action 13).

To what extent does your jurisdiction follow the OECD Action Plan on Base Erosion and Profit Shifting?

In general, Denmark follows the BEPS project closely and is expected to uphold measures covered by the BEPS actions. As mentioned above, Denmark has adopted legislation on many areas covered by the BEPS Action Plan.

Is there a legal distinction between aggressive tax planning and tax avoidance?

The term ‘aggressive tax planning’ has no legal status in Denmark; consequently, aggressive tax planning has no specific legal effects. The Danish domestic rules cover tax avoidance only when specifically covered by the anti-avoidance rules.

Penalties

What penalties are imposed for non-compliance with anti-avoidance provisions?

There are no specific penalties for not complying with the Danish anti-avoidance rules. However, general penalties and interest apply with respect to taxes assessed and reported that deviate from the tax return submitted by the taxpayer. Increased fines and penalties generally apply in case of tax evasion.

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