GloBE Country Guide: Denmark

Legislation

The Danish Minimum Taxation Act was enacted as Law No. 1535 of December 12, 2023.  This follows the draft bill issued by the Danish Ministry of Taxation on June 23, 2023.

General

The law includes an Income Inclusion Rule (IIR), an Under-Taxed Profits Rule (UTPR)  and a domestic minimum tax (intended to be a QDMTT). Whilst Section 71 of the law provides that the IIR and the domestic minimum tax apply for reporting periods beginning on or after December 31,  2023, the UTPR will apply to reporting periods beginning on or after December 31, 2024. This is subject to an exception for UPEs located in Member States that decide to defer the application of the IIR and UTPR until 2030.

The law closely follows the EU Minimum Tax Directive and reflects the latest guidance, including aspects of the Commentary, OECD Safe Harbours Guidance and the Administrative Guidance.

The Danish approach to drafting the law is similar to Sweden and the Czech Republic in that it redrafts the EU Minimum Tax Directive (and aspects of other OECD relevant guidance) into domestic law.

It is estimated that approximately 75 Danish Ultimate Parent Entities (UPEs) will be required to  submit a GloBE information return on behalf of an MNE group. The Danish Tax Administration estimates that around 7,000 subsidiaries (both foreign and domestic) will be within scope.

The EU Minimum Tax Directive is implemented into domestic law as a separate law, with separate provisions for reporting, inspection, appeals and penalties.

When interpreting the Danish Minimum Tax Act, the explanatory guidance states that other OECD guidance such as the Commentary, Examples and Administrative Guidance will be used. Subsequent updates to OECD commentary and other guidance will therefore be taken into account.

Safe Harbour & Transitional Penalty Relief

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

Differences to Model Rules

UTPR

When implementing the UTPR, jurisdictions have a choice as to how to implement it. In particular, they could treat this as additional tax, deny a deduction or deem there to be notional income in order to give rise to the required top-up tax.

Denmark is designing this as an additional tax. This will result in the rules in the Minimum Taxation Act operating separately from the general corporate tax system, whereas a rule on denial of a deduction would imply a link to the group unit’s income statement.

This coupling would, among other things, have meant that later changes in the calculation of taxable income could have an impact on the UTPR.

Elections in the OECD Model Rules

All of the elections included in the OECD Model Rules and the EU Minimum Tax Directive are provided in the draft law, including:

• Excluded Entity Election (Section 2(3) of the law)
• Stock-Based Compensation Election (Section 16.2 of the law)
• Election to use the Realization Method (Section 16.1 of the law)
• Election to Spread Capital Gains (Section 16.3 of the law)
• Consolidation Election (Section 12(4) of the law)
• Unclaimed Accrual Election (Section 23(8) of the law)
• GloBE Loss Election (Section 24 of the law)
• Prior Year Adjustment Election (Section 26(2) of the law)
• De minimis Election (Section 31(1) of the law)
• Substance-Based Income Exclusion Election (Section 30(1) of the law)
• Taxable distribution Election (Section 42 of the law)
• Tax transparency Election (Section 41 of the law)
• Distribution Tax Regime Election (Section 27(1) of the law)

Elections in the Administrative Guidance

Other elections included in the OECD Administrative Guidance are included in the draft law. This includes the:

• Debt Release Election (Section 15(15) of the law);
• Equity Investment Inclusion Election (Section 15(5) of the law);
• Foreign Exchange Hedge Election (Section 15(4) of the law);
• Portfolio Shareholding Election (Section 15(6) of the law);
• Excess Negative Tax Carry-Forward Election (Section 22 (5) of the law).

Administrative Guidance

Aspects of the February and July 2023 OECD Administrative Guidance included in the draft law are:

• 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)

Qualifying Domestic Minimum Top-Up Tax

Chapter 13 of the law includes a domestic minimum tax that is likely to be a QDMTT. This allows Denmark to levy top-up tax on the profits of low-taxed Danish-based entities of MNE groups that don’t have a UPE in Denmark.

The calculation of the QDMTT is relatively straightforward. In particular it applies the Top-Up Tax calculated under the general GloBE rules and then subjects this to a very small number of adjustments.

Article 13 of the law reflects the OECD Administrative Guidance by permitting MNEs to not use the UPEs accounting standard and instead use an accepted financial reporting standard or an authorized financial reporting standard provided that the information in the financial statements has been corrected to prevent any significant distortion of competition.

This means, for instance, that a Danish-based low-taxed group entity may choose to compute the excess profit for QDMTT purposes based on IFRS whilst its UPE uses GAAP of the USA in the preparation of its consolidated financial statements. Note that this is the same provision in Article 3.1.3 of the Model rules that applies for the IIR/UTPR top-up tax calculation.

Tax paid or incurred by a Constituent Entity-owner under a CFC Tax Regime that is pushed down to a domestic Constituent Entity in the GloBE Rules must be excluded, as provided in the OECD Administrative Guidance. This is included in Section 48 of the law.

This preserves Denmarks primary right to tax income accruing to a Danish member entity which is also a CFC. If there were no statutory derogation from the general GloBE rules for the calculation of the domestic minimum tax, and the CFC tax paid by the controlling company abroad were included in the included taxes of the Danish CFC, the effective tax rate would be increased. Therefore, excluding the CFC tax from the Danish CFCs covered taxes allows Denmark to tax low-taxed income at a higher rate than would be the case under an

Section 48 also prevents the pushdown of tax to hybrids, PEs and for taxes on distributions (aside from Danish withholding tax on distributions).

Any QDMTT that has not been paid within four years is usually taken into account for top-up tax purposes in the fifth year. This does not apply for the QDMTT calculation (just for tax under an IIR or UTPR). This is required to avoid circularity and ensure the QDMTT is not taken into account for the domestic minimum tax calculation.

Administration and Filing

Filing

The relevant aspects of the submission of a GloBE Information Return (GIR) are included, as provided in the EU Directive.

The proposed approach is that every Constituent Entity located in Denmark will have an obligation to file a GIR in Denmark. However, this obligation can be discharged if the GIR is filed by:

• A Designated Local Entity,
• The Ultimate Parent Entity, or
• The Designated Filing Entity.

Where the GIR is being filed by either the Ultimate Parent Entity or the Designated Filing Entity, the Constituent Entity, must file a notification with the Revenue.

The notification must contain:

• Details of the entity that is filing the GIR, and
• The jurisdiction in which such an entity is located.

Where the GIR is filed by the Designated Local Entity it needs to outline the Constituent Entities that it is filing on behalf of.

Both the GIR and associated notifications must be filed no later than 15 months after the end of the fiscal year (with an 18-month deadline for the Transition Year).

Penalties

Penalties are applied under the Penal Code.

Payment

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).

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