By judgment of 22 December 2021, the Eastern High Court has changed the Danish Tax Agency’s practice for when a taxpayer is entitled to the application of the researcher tax scheme. The taxpayer was granted that the remuneration requirement was met, even though the salary was not increased until a new employment contract was entered into in the current calendar year.
Researchers and highly paid employees recruited from abroad by an employer may, under certain conditions, choose to apply the tax scheme for researchers and thus pay a gross tax of 27 % and labour market contribution of the salary for seven years. One of the conditions for applying the scheme is that the employee must have an average annual salary of at least DKK 70,400 (2022) within the calendar year – the so-called remuneration requirement.
In its practice on the application of the tax scheme for reseachers, the tax authorities had accepted that changes were made to an employment contract during the course of an employment relationship in order to ensure that the remuneration requirement was still met, as the rate was increased at the end of each year. However, according to the practice of the tax authorities, it was a condition that the change was made before the beginning of the coming calendar year.
In a principal judgment by the Eastern High Court, the taxpayer was granted that the remuneration requirement was met, even though the salary had been increased by a new employment contract in the current calendar year. The Court unanimously found that there was no basis, according to the wording or legislative history of the provision, nor in light of the genesis of the case and the purpose of the tax scheme for researchers, for interpreting a requirement that changes in the remuneration in an employment contract for people already covered by the tax scheme for researcher had to be made before the beginning of the coming calendar year in order for the remuneration requirement under the Withholding Tax Act to be met.
The change in practice means that an employee who already uses the researcher tax scheme and meets the conditions for this will be entitled to continue to use the scheme, even though the remuneration requirement under the original employment contract would not be met. The remuneration requirement for subsequent and future years may thus be fulfilled if the employee and the employer increase the salary in the employment contract so that the employee obtains an average monthly salary in the calendar year in question corresponding to the rate in that year, as long as the salary adjustment takes place within the same calendar year at the latest.
The Eastern High Court’s change in practice is expected to provide access to reopen cases where the application of the researcher tax scheme has been rejected on the grounds that a possible supplementary agreement had not been concluded before the turn of the year.
As this is a practice that has been changed by a judgement, the change is expected to be published by a guidance signal from the Tax Administration. However, reopening is not conditional on a published guidance signal, and a request for reopening can therefore already now be made.
Bachmann/Partners Advokatpartnerselskab advises on incentive schemes and can help you assess whether you are entitled to a reopening of your case, and we have extensive experience and success in conducting reopening cases.
For further information, please contact Christian Bachmann on Phone: +45 30 30 45 21 / chb@bachmann-partners.dk, Ann Rask Vang on Phone: +45 20 94 78 21 / ava@bachmann-partners.dk or Peter Hansen on Phone: +45 40 32 35 35 35 / pha@bachmann-partners.dk.