On July 12th 2016, the Council of the European Union passed the Anti-Tax Avoidance Directive 2016/1164 regarding methods for abating tax avoidance that directly affects the inner market’s operating principle. The Directive is to a high extent an outcome of increasing globalisation, which has caused a significant problem for multinational corporations that profit from diverging corporate tax systems spanning across borders. This project has the purpose of shedding light on the Danish CFC legislation following the implementation of the ATA directive qua draft legislation no L 28 B. The proposed amendment for SEL § 32 has resulted in extensive criticism from various trade organisations, business enterprises, and other parties that have expressed displeasure with the Danish Parliament’s excessive implementation of the ATA directive article 7, subsection 1, paragraph b (the low-tax condition) including article 7, subsection 2, paragraph a (the substance exemption). An analysis of the law in force indicates that implementation of the directive’s regulations will cause an increased demand for compliance in relation to the CFC legislation. Furthermore, the alteration is expected to expand the scope of application. The reason behind this is particularly; 1) an aggravation of the control condition, 2) reduction of the income condition threshold, and 3) expansion of the definition of CFC incomes with two types of income, i.e. income from immaterial assets as well as income from invoicing companies. Therefore, the efficiency of the Danish CFC legislation is assessed to not be harmonising sufficiently with the associated administrative and financial costs. This can have a negative impact of the competitiveness of Danish corporations since establishment in Denmark will, ceteris paribus, become less favourable.
Additionally, the analysis clarifies that the Danish regulations regarding CFC taxation presumably are more restrictive than necessary for complying with the objective to reduce the scale of aggressive tax planning, including preservation of the Danish corporate tax foundation. The underlying reason for this is that the Danish CFC legislation applies to all subsidiaries regardless of the jurisdiction’s level of taxation or whether or not the establishment is real. Relating to the aforementioned, the conclusion in this report assesses the anti-avoidance rule to be incongruent with the proportionality principle, thus conflicting with the Treaty of the European Union’s Operating Principle, i.e. the fundamental principles concerning freedom of establishment.