In a new decision, the National Tax Tribunal found that section 16 E of the Danish Tax Assessment Act (Ligningsloven) on illegal shareholder loans did not apply, as siblings are not considered closely related, and that the sister’s ownership interests could therefore not be included in the assessment of whether a shareholder had a controlling influence.

When assessing whether transfers from a company to a shareholder can be considered an illegal shareholder loan, it must be assessed whether the shareholder has control over the company. Controlling influence means that a shareholder directly or indirectly owns more than 50 % of the share capital or holds more than 50 % of the votes. In the assessment, shares and voting rights held by the shareholder’s close relatives are included.

In a recent case in the National Tax Tribunal, the case was about a company owned by A and A’s sister with 50 % each. In that case, the Danish Tax Agency had increased the complainant’s share income in the income years 2015 and 2016 by DKK 44,582 and DKK 60,882 respectively, corresponding to the complainant’s share of gross withdrawals from the company’s account. The Danish Tax Agency’s assessment was that the complainant had received the amounts as shareholder loans covered by section 16 E of the Danish Tax Assessment Act.

In accordance with the wording of the Danish Tax Assessment Act, the National Tax Tribunal concluded that A was not covered by the group of persons in section 16E(1) of the Danish Tax Assessment Act. A did not have a controlling influence in the company, as A did not own more than 50 % of the shares or votes in the company, and shares owned by A’s sister should therefore not be included in the assessment, cf. section 2(2) of the Danish Tax Assessment Act.

The consequence was that the loan relationship between A and the company had to be treated in accordance with the applicable practice from before the entry into force of section 16 E of the Danish Tax Assessment Act. The supplementary rules stated that loans that arose when the main shareholder regularly withdrew amounts from a suspense account for payment of private expenses were recognised for tax purposes when the shareholder was solvent. The National Tax Tribunal did not otherwise find that there was a basis for taxation of A in the case.

The decision is correct and shows that it is important to be aware of the Danish Tax Agency’s handling of loans between companies and shareholders.

Bachmann/partners advises in tax cases and has extensive experience in handling illegal shareholder loans. If you are in a similar situation, you are welcome to contact us.

For further information, please contact Christian Bachmann on tel. +45 30 30 45 21 /, Ann Rask Vang on tel. +45 20 94 78 21 / or Peter Hansen on tel. +45 40 32 35 35 35 /

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