The Danish Parliament, Folketinget, decided on Friday 14 December 2012 to abolish taxation on companies' gains on unlisted portfolio shares - the so-called entrepreneur tax ("iværksætterskat"). The new rules also imply that any loss on unlisted portfolio shares cannot be deducted in the future. The purpose of the new rules is to create an incentive for investors to invest in companies in growth and thereby make it easier for companies to obtain venture capital. The main features of the changes are described below.
Taxation on unlisted portfolio shares
The applicable rules on taxation on capital gains imply that companies owning less than 10% of the share capital in another company (portfolio shares) are liable to pay tax on any capital gains from the shares. This taxation has been informally referred to as the "entrepreneur tax" because of its impact on e.g. companies' investments in entrepreneur companies and companies in growth.
The adoption of the new rules abolishes companies' tax liability on capital gains from unlisted portfolio shares. Companies' capital gains on listed portfolio shares are not comprised by the tax exemption. Dividend from portfolio shares is still subject to taxation. Dividend on subsidiary and group shares is still tax-exempt.
The new rules took effect on 1 January 2013. Thus, the tax status of companies' unlisted portfolio shares changed as per 1 January 2013. The change from taxable to tax-exempt will not constitute an assignment and, hence, non-realised gains from the shares will be tax-exempt in general.
Anti-avoidance rules
The tax exemption requires that the value of the portfolio company's listed shares does not exceed 85% of the portfolio company's equity capital. This requirement is meant to prevent a company from obtaining tax-exempt gains on listed shares by "wrapping up" the listed shares in an unlisted portfolio company and subsequently realise the gains on the unlisted portfolio shares.
The new rules also provide protection against companies exploiting the difference in taxation between dividend (subject to tax) and capital gains (tax-exempt). The effect of this rule is that if a company as-signs unlisted portfolio shares with tax-exempt gains and then reacquires the same portfolio shares with-in a period of 6 months, the difference between the assignment price and the reacquisition price is con-sidered taxable dividend. This only applies when the assignment price is higher than the reacquisition price and dividend has been distributed within the 6 month period.
No deduction for loss
As from 1 January 2013, companies' losses on unlisted portfolio shares will not be deductible.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
