National Sambeskatning

Abstract

This thesis seeks to analyze the effects of mandatory national joint taxation, focusing on its associated benefits and drawbacks. The analysis is supported by examples to enhance understanding and provide clarity for the reader. The approach employs a judicial methodology to describe, interpret, and organize the relevant legal framework. Given that the Danish joint taxation rules are outlined in the Corporate Tax Act, this legislation serves as the primary theoretical foundation of the thesis. Since the early 20th century, the regulations surrounding joint taxation have undergone significant transformation and continue to evolve. However, the most notable reform occurred with the passage of Act No. 426 on June 6, 2005. This act made joint taxation mandatory for affiliated Danish companies, introduced the territorial principle, and defined the concept of "controlling influence." Since then, subsequent changes to the rules have been relatively minor. The core principle of joint taxation allows profitable companies within a group to offset losses incurred by affiliated companies against their own income. Taxation occurs at the group level, enabling tax deferrals that benefit the group as a whole. To ensure proper compliance, an administration company is designated to manage the settlement of taxes with the tax authorities. Each company must compensate the administration company for its share of the tax liability, ensuring that the financial capacity of individual companies remains unaffected. Joint taxation offers additional advantages, such as the ability to grant tax-free subsidies within the group, which would otherwise be taxable. This increased flexibility is a significant benefit for affiliated companies operating under joint taxation rules. Nevertheless, the framework also presents challenges. One major issue is the joint and several liability imposed on wholly-owned group-connected companies. Subsidiary companies bear liability proportionate to their ownership share by the ultimate parent company. This creates a risk for minority shareholders, who may become liable for debts in companies where they have no direct influence — a potential unintended consequence of the regulations. Another limitation arises from deficit restrictions. Companies are unable to offset deficits exceeding a defined threshold, which was set at DKK 7.5 million in 2010-levels, functioning similarly to a minimum tax. Despite these drawbacks, the advantages of increased liquidity and operational flexibility generally outweigh the disadvantages, making the mandatory national joint taxation system a net positive for Danish corporate groups.

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A master thesis from Aalborg University

National Sambeskatning

[National Joint Taxation]