Denmark Tax Alert - 01 November 2012
New bill proposed to ease taxation of capital gains on portfolio shares
By Erik Banner-Voigt, Birgitte Tabbert
The Danish government presented a bill to parliament on 1 November 2012 that would grant a tax exemption for capital gains derived by companies from the sale, etc. of unlisted portfolio shares. Dividends from unlisted portfolio shares would remain taxable.
The salient features of the proposed exemption are as follows:
- The exemption would apply only to gains derived from the sale of unlisted portfolio shares held by a company that owns less than 10% of the share capital of the portfolio company (i.e. the company could not have a decisive influence on the portfolio company). Unlisted portfolio shares are shares that are not traded on a regulated market or a multi-lateral trading facility. As a result, it would be essential for companies to distinguish between listed and unlisted shares.
- The exemption would apply only to shares in public or private limited companies, or foreign companies of a similar nature. In the case of a foreign company, it would be essential that the owner of the capital only have limited liability and be entitled to dividends and influence in proportion to the injected capital.
- The exemption would not apply to shares held by life insurance companies, shares falling within the scope of the intermediary shareholdings rules, or convertible bonds or subscription rights to convertible bonds.
- To prevent abuse, capital gains and losses on the unlisted shares would be taxable if more than 85% of the unlisted portfolio company’s assets consist of listed shares. This determination would be made on the basis of the average value of the listed shares as a percentage of the average value of the portfolio company’s assets, as reflected in its accounts for the previous year. This rule would prevent listed shares from being “wrapped up” in an unlisted company. Other rules would prevent a corporate shareholder from selling a portfolio share before the declaration of dividends in order to convert otherwise taxable dividends to tax-exempt capital gains or taxable dividends to tax-exempt liquidation proceeds.
The exemption from taxation implies that capital gains and losses on unlisted portfolio shares would not be included when calculating taxable income. Companies with a balance of unutilized, realized losses still would be able to offset these losses against gains on other portfolio shares taxed on a realized basis.
The parliament will do a first reading of the bill on 13 November, and it is likely that the bill will be adopted. In that case, the exemption would apply as from 1 January 2013.