Denmark Issues a Draft Law for June 2024 and January 2025 OECD Administrative Guidance

The Danish Minimum Taxation Act was enacted as Law No. 1535 of December 12, 2023. This implemented the Pillar Two Global Minimum Tax as provided in the EU Minimum Tax Directive. On June 11, 2024, Law No. 684 was published in the Danish Official Gazette. This amended the Minimum Tax Act to implement additional aspects of the OECD Administrative Guidance.

On February 3, 2025, the Danish Ministry of Finance issued draft legislation (Bill 2024-4606) for consultation. This provides for further amendments to the Danish Minimum Tax Act for the June 2024 and January 2025 OECD Administrative Guidance. The proposed amendments apply for financial years beginning on or after December 31, 2023.

OECD Administrative Guidance

Minimum Taxation Act

Aspects of the February and July 2023 OECD Administrative Guidance included in the Minimum Taxation Act are:

-Sovereign wealth funds and the definition of Ultimate Parent Entity (Article 1.4)

-Meaning of “ancillary” for Non-Profit Organisations (Article 1.6)

-Forex hedge election (Article 2.2)

-Debt release election (Article 2.4)

-Accrued Pension Expenses (Article 2.5)

-Excess negative tax carry-forward guidance (Article 2.7)

-Substitute Loss carry forwards (Article 2.8)

-Equity Gain or loss inclusion election (Article 2.9)

-The extension of the taxable distribution method election to insurance investment entities (Article 3.1)

-Exclusion of Insurance Investment Entities from the definition of Intermediate Parent Entity and Partially-Owned Parent Entity (Article 3.2)

-Restricted Tier One Capital (Article 3.3)

-Liabilities related to Excluded Dividends and Excluded Equity Gain or Loss from securities held on behalf of policyholders (Article 3.4)

-Portfolio shareholding election (Article 3.5)

-Transitional rules (Article 4)

-MTTCs (Second Set of OECD Administrative Guidance)

-Meaning of “ancillary” for Non-Profit Organisations (Second Set of OECD Administrative Guidance)

Amending Laws

Certain aspects of the December 2023 OECD Administrative Guidance that relate to the Transitional CbCR Safe Harbour are included in the June 2024 amending law (see below).

The proposed amendments in the February 2025 draft law include amendments for the June 2024 and January 2025 OECD Administrative Guidance (AG). This includes:

– Reversal of DTLs that accrued before the Transition Year (Article 1.2.2 June 2024 AG)

– 5 year unclaimed accrual election (Article 1.2.2 June 2024 AG)

– Recalculated deferred tax where GloBE carrying value differs from accounting carrying value (Article 2.1.2 June 2024 AG)

– Extension of the Substitute Loss Carry-forward DTA to PEs, Hybrids and Reverse Hybrids (Article 4.1 June 2024 AG)

– Allocation of deferred tax expenses and benefits from a Parent Entity to a CFC, PE Hybrid or Reverse Hybrid (Article 4.2 June 2024 AG)

– Five-Year Election to exclude the allocation of all deferred tax expenses and benefits to CFCs, PEs, Hybrids and Reverse Hybrids (Article 4.2.2 June 2024 AG)

– Determining GloBE status when a Flow-through Entity is held directly by another Flow-through Entity (Article 5.2.2 June 2024 AG)

– Non-group owners: Partially owned Flow-through Entities (Article 5.3.2 June 2024 AG)

– Non-group owners: Indirect minority ownership (Article 5.3.5 June 2024 AG)

– Taxes allocated to a flow-through entity (Article 5.4.2 June 2024 AG)

– Hybrid entities – Taxes pushed down include indirect owners (Article 5.5.2 June 2024 AG)

– Hybrid entities – Entities located in jurisdictions without a Corporate Income Tax system (Article 5.5.4 June 2024 AG)

– Extension of taxes pushed down to include Reverse Hybrids (Article 5.6.2 June 2024 AG)

– Amendments to the Switch-Off rule (Article 6.1.4 June 2024 AG)

– New definition: Securitization Entity (Article 6.1.4 June 2024 AG)

– New definition: Securitization Arrangement (Article 6.1.4 June 2024 AG)

– Amendments to Article 9.1 of the GloBE Rules for the deferred tax transition rules (governmental arrangements including new CIT regimes and a grace period) (January 2025 AG).

Safe Harbour & Transitional Penalty Relief

The Transitional CbCR Safe Harbour is included in Section 72 of the Minimum Tax Act. The Transitional UTPR Safe Harbour (Section 75) and the QDMTT Safe Harbour (Section 34(2)) are also included.

The June amending law includes some additional aspects of the December 2023 OECD Administrative Guidance that amends the Transitional CbCR Safe Harbour. This includes:

-Purchase Accounting Adjustments (consistent reporting condition, goodwill impairment adjustment)

-Treatment of hybrid arbitrage arrangements

Section 24 of the June amending law includes the NMCE Simplified Calculations Safe Harbour.

The February 2025 draft bill also includes some further amendments to the Safe Harbours to reflect the January 2025 OECD Administrative Guidance:

– Amendments to CbCR Safe Harbour for Article 9.1 amendments (January 2025 AG); and

– Amendments to QDMTT Safe Harbour for Article 9.1 amendments (January 2025 AG).

Payment/Registration

Payment of top-up tax is required by 16 months after the last day of the reporting year (increased to 19 months in the commencement year). The February 2025 draft bill increases the payment deadline to 17 months after the last day of the reporting year (increased to 20 months in the commencement year).

Section 24 of the Bill also confirms that the deadline for GloBE registration is 6 months after the expiry of the reporting year.