The National Tax Tribunal reverses the case law of the Danish Tax Agency on additional taxation of foundations' tied-up funds on dissolution
13 October 2023
The National Tax Tribunal recently issued a decision in a matter concerning the tax treatment of the tied-up funds of a foundation in connection with dissolution and distribution of such funds. The foundation, represented by Plesner, was successful in claiming that the distribution was not taxable.
The matter involved a private foundation.
In connection with the establishment of the foundation, the Danish Tax Agency confirmed that the foundation was not liable to pay tax on contributed tied-up funds at the time of the establishment, see section 3(6) of the Danish Foundations Act, as the contributed funds were not to be distributed and as, under the statutes of the foundation, the funds were not to be (or could not be) distributed within a specific period.
Several years later, the foundation authority consented to dissolution of the foundation and distribution of all its funds (including the tied-up funds). In that connection the foundation requested that the Danish Tax Agency confirmed that the contemplated distribution of the foundations' tied-up funds was not taxable for the foundation.
The Tax Agency issued a negative binding assessment notice, as it was the Agency's view that the planned distribution of the tied-up founds would be taxable.
The decision was made with reference to the Tax Agency's previous case law, as reproduced in the Legal Guidelines (Den Juridiske Vejledning), para C.D.9.5.5.1. More specifically, the Danish Tax Agency found that there had been a "failure of basic assumptions" when the originally contributed funds had flowed to the foundation as tax-exempt tied-up funds but could now – with the consent of the authorities – be distributed on the dissolution of the foundation.
The decision was appealed to the National Tax Tribunal.
The National Tax Tribunal found – consistent with the foundation's view – that the legislation does not authorise taxation of the tied-up capital in connection with the dissolution of the foundation. Accordingly, the National Tax Tribunal found for the foundation, stating that the Danish Tax Agency had not established any authority in law for taxation, and that the Tax Agency's point of view did not in itself constitute legal basis.
The decision has not been brought before the Danish courts. As a consequence of the decision, the Danish Tax Agency has issued new guidelines, stating that the Agency has changed its practices. In future, distributions from the contributed capital which were not taxable for the foundations at the time of acquisition will not be taxable for the foundation. The guidelines also includes information on the possibility of reopening of proceedings. The guidelines are expected to be incorporated in the Legal Guidelines.
Codan Forsikring was represented by Plesner.
Read the decision (in Danish)
Read the guidelines (in Danish)
In connection with the establishment of the foundation, the Danish Tax Agency confirmed that the foundation was not liable to pay tax on contributed tied-up funds at the time of the establishment, see section 3(6) of the Danish Foundations Act, as the contributed funds were not to be distributed and as, under the statutes of the foundation, the funds were not to be (or could not be) distributed within a specific period.
Several years later, the foundation authority consented to dissolution of the foundation and distribution of all its funds (including the tied-up funds). In that connection the foundation requested that the Danish Tax Agency confirmed that the contemplated distribution of the foundations' tied-up funds was not taxable for the foundation.
The Tax Agency issued a negative binding assessment notice, as it was the Agency's view that the planned distribution of the tied-up founds would be taxable.
The decision was made with reference to the Tax Agency's previous case law, as reproduced in the Legal Guidelines (Den Juridiske Vejledning), para C.D.9.5.5.1. More specifically, the Danish Tax Agency found that there had been a "failure of basic assumptions" when the originally contributed funds had flowed to the foundation as tax-exempt tied-up funds but could now – with the consent of the authorities – be distributed on the dissolution of the foundation.
The decision was appealed to the National Tax Tribunal.
The National Tax Tribunal found – consistent with the foundation's view – that the legislation does not authorise taxation of the tied-up capital in connection with the dissolution of the foundation. Accordingly, the National Tax Tribunal found for the foundation, stating that the Danish Tax Agency had not established any authority in law for taxation, and that the Tax Agency's point of view did not in itself constitute legal basis.
The decision has not been brought before the Danish courts. As a consequence of the decision, the Danish Tax Agency has issued new guidelines, stating that the Agency has changed its practices. In future, distributions from the contributed capital which were not taxable for the foundations at the time of acquisition will not be taxable for the foundation. The guidelines also includes information on the possibility of reopening of proceedings. The guidelines are expected to be incorporated in the Legal Guidelines.
Codan Forsikring was represented by Plesner.
Read the decision (in Danish)
Read the guidelines (in Danish)
