In a judgment of 21 February 2023, the Supreme Court found that a re-taxation as a result of the liquidation of a Danish parent company’s foreign subsidiary did not constitute a controlled transaction that could form the basis for an ordinary reopening of the parent company’s tax assessment. Furthermore, the Supreme Court found that the Nordea judgement did not constitute a rejection of practice that could form the basis for an extraordinary reopening of the parent company’s tax assessment.
A taxpayer may have his tax assessment amended by ordinary reopening if, no later than 1 May of the fourth year following the end of the income year, information of a factual or legal nature is provided to justify the amendment. However, in the case of “controlled transactions”, the time limit does not expire until the sixth year following the end of the tax year. However, if the practice is not recognised, a taxpayer who does not meet the time limit for ordinary reopening may have access to an extraordinary reopening of a tax assessment for up to ten years back in time.
In its judgment of 21 February 2023, the Supreme Court considered whether a company was entitled to either ordinary or extraordinary reopening of its tax assessment for the 2009 income year.
The company, which was jointly taxed with its Dutch subsidiary until the 2005 income year, had recognised a significant re-taxation balance in the income statement when the subsidiary was liquidated in 2009. The reassessment was made in accordance with the rules of the current Assessment Act on reassessment after the termination of joint taxation with foreign subsidiaries.
The company’s request for reopening the case was based on the judgment of the European Court of Justice of 17 July 2014 – the so-called “Nordea case”. In the judgement, the CJEU found that the previous provision in the Danish Assessment Act on Danish joint taxation rules regarding the disposal of foreign permanent establishments was contrary to the right of establishment in the Treaty on the Functioning of the European Union (TFEU).
The Supreme Court found that the re-taxation, which entailed an adjustment of the losses in the subsidiary, which the company as parent company had deducted from its taxable income in previous years, was not an expression of a “controlled transaction”. Against this background, the Supreme Court found that the company was not entitled to an ordinary reopening.
The question was then whether an extraordinary reopening of the tax assessment could be made on the basis of a rejection of previous practice or special circumstances. As the Nordea case concerned re-taxation of deducted losses in foreign permanent establishments, and not re-taxation of deducted losses in foreign subsidiaries, the Supreme Court found that the EU judgement could not form the basis for an extraordinary reopening. Finally, the Supreme Court stated that there were no special circumstances such that there were grounds for reopening the 2009 income year.
The Supreme Court’s judgement illustrates how difficult it can be to assess whether a decision can form the basis for an ordinary/extraordinary reopening. Bachmann/Partners Law firm are specialised in reopening cases and are happy to assist you with an assessment of your case.
For further information, please contact Christian Bachmann on tel. +45 30 30 45 21 / chb@bachmann-partners.dk, Ann Rask Vang on tel. +45 20 94 78 21 / ava@bachmann-partners.dk or Peter Hansen on tel. +45 40 32 35 35 35 / pha@bachmann-partners.dk.