Tax-Free Capital Gains From 1 January 2013

The Danish Parliament, Folketinget, decided on Friday 14 December 2012 to abolish taxation on companies' gains on unlisted portfolio shares - the so-called entrepreneur tax ("iværksætterskat"). The new rules also imply that any loss on unlisted portfolio shares cannot be deducted in the future. The purpose of the new rules is to create an incentive for investors to invest in companies in growth and thereby make it easier for companies to obtain venture capital. The main features of the changes are described below.

Taxation on unlisted portfolio shares

The applicable rules on taxation on capital gains imply that companies owning less than 10% of the share capital in another company (portfolio shares) are liable to pay tax on any capital gains from the shares. This taxation has been informally referred to as the "entrepreneur tax" because of its impact on e.g. companies' investments in entrepreneur companies and companies in growth.

The adoption of the new rules abolishes companies' tax liability on capital gains from unlisted portfolio shares. Companies' capital gains on listed portfolio shares are not comprised by the tax exemption. Dividend from portfolio shares is still subject to taxation. Dividend on subsidiary and group shares is still tax-exempt.

The new rules took effect on 1 January 2013. Thus, the tax status of companies' unlisted portfolio shares changed as per 1 January 2013. The change from taxable to tax-exempt will not constitute an assignment and, hence, non-realised gains from the shares will be tax-exempt in general.

Anti-avoidance rules

The tax...