This master’s thesis concerns the valuation circular in connection with transfer of real estate by distribution of inheritance or in living live within the group of persons with regard to gift tax. In case of transfer of assets to closely related parties, including real estate, the rules of the valuation circular (in Danish: “værdiansættelsescirkulæret”) apply.
According to the valuation circular, real estate can be transferred to closely related parties at a valuation corresponding to the most recently official property valuation of the real estate concerned, plus or minus 15 pct. (the so-called “+/-15 pct. rule"), and so that the tax authorities in such cases must respect such valuation for tax and fiscal purposes.
In the last couple of years, this +/- 15 pct. rule has received a lot of attention, including as the rule is based on the most recently official property valuation of the real estate concerned, which was published in the years of 2011 and 2012. Therefore, such official property valuation might not be in line with the trade value of such real estates of today etc.
In continuation of this, several cases have been brought by the courts, and the Danish Supreme Court has also in a separate case (SKM2016.279.HR) taken a position on the range and scope of the +/-15 pct. rule. In the decision of the Danish Supreme Court in this case, the Danish Supreme Court states that the tax authorities are not obligated to respect a valuation for tax and fiscal purposes in case that the valuation is determined in accordance with this +/-15 pct. rule and if so-called “special circumstances” exists.
In September 2021, a new valuation circular was issued, which changes, among other things, the +/- 15 pct. rule, so that the percentage is 20 pct instead of 15 pct (a so-called “+/- 20 pct. rule”). It is assumed that the term of “special circumstances” must be understood in the same way in the new circular as under the previous circular.
Although, it is not further defined in the valuation circular or in the legislation in general what exactly is to be understood by such “special circumstances”. The purpose of this master’s thesis in this regard is to examine what is to be understood by such “special circumstances”.
On basis of review of case law, including case law from the Danish court of law, it can be concluded that such special circumstances exists if a real estate has been purchased by a third party, and afterwards, especially if this happens in close temporal affiliation, the real estate is transferred to a closely related party at a lower price based on the valuation circular.
Furthermore, it can be concluded that if the transferor has obtained an expert assessment regarding the valuation of the real estate concerned, for example from a real estate agent, which deviates from the valuation in accordance with the valuation circular, this can also be considered a special circumstance.
If the acquirer of the real estate has mortgaged the real estate after the transfer of the real estate to the acquirer, and the collateral value is higher than the price at which the real estate was transferred, this can also, after a concrete assessment, be considered a special circumstance. Based on case law, it is not possible to specify how much of a difference is required in such cases. However, the risk that such a situation shall be considered a special circumstance must be greater if the mortgaging has taken place in close temporal connection with the transfer of the real estate.
Regarding external conditions etc., normal price development is not to be considered a special circumstance in this case.
Furthermore, in case that a new official property valuation has been published under the new Property Valuation Act, this is not to be considered a special circumstance if the agreement regarding transfer of the real estate concerned has been concluded before the new official property valuation was issued.
In summary, on basis of this master’s thesis, it can be concluded that case law from the time after the decision of the Danish Supreme Court (SKM2016.279.HR) have contributed to the interpretation of the term “special circumstances”, but the term is still not fully defined, which case law for the future is likely to contribute to.