Generally, international joint taxation is elected for a period of 10 years.
During this period, a recapture should be kept, country-by-country, of the tax value of foreign losses that are deducted from consolidated taxable income and have not since been reduced by the tax value of profits.
The 10-year period does not imply that international joint taxation cannot be terminated before the end of the period. However, previously deducted losses (recapture) from foreign group companies, etc. will be taxed in the income year in which international joint taxation ceases.
On the contrary, if international joint taxation is terminated upon expiry of the 10-year period, the taxable income of the administrative company in year 11 will increase with the lowest amount of either the recapture or fictitious liquidation profits of the foreign companies. Hence, in most cases, international joint taxation is not terminated before expiry of the 10-year period.
Considerations at the end of the 10-year period
Whether international joint taxation should be re-elected at the end of the 10-year period for a new 10-year period or whether international joint taxation should end, essentially depends on expectations of future earnings in the foreign entities.
As a general rule of thumb, expectation of profits calls for termination of international joint taxation, while expectation of (further) loss calls for re-election.
The fact that - for example, due to prospect of profits - international joint taxation is not re-elected does not preclude election of international joint taxation for later income years if desired.
Practical issues upon termination of international joint taxation
At the end of the 10-year period, the international joint taxation terminates automatically, unless re-election is requested. However, box 165 of the tax return for the first fiscal year after the end of the 10-year period (year 11) must be checked.
The Danish tax authorities should be notified in writing if termination of international joint taxation is desired before the end of the 10-year period. Notification should be provided before the end of the deadline for filing the tax return for the income year in which the international joint taxation would terminate. This is the income year in which a possible recapture shall be included in the taxable income. Apparently, there is no particular section of the online system of the Danish tax authorities to be checked in this regard.
Practical issues upon re-election of international joint taxation
Re-election of international joint taxation at the end of the 10-year period shall be notified to the Danish tax authorities via registration of the administrative company in the systems of the Danish tax authorities. This must be done no later than the deadline for filing the tax return for year 11.
The above article is taken from tax:watch, our electronic English newsletter on Danish Tax and VAT matters. tax:watch is issued on the last Friday of each month and is free of charge. Please sign up here.