The EU recently adopted a Directive that sets an effective minimum corporate tax rate for large multinational corporations. Minister for Taxation Jeppe Bruus presented the bill, which went through the first reading 14 November 2023.
In October 2021, Denmark and 135 other states joined the OECD agreement on taxation of the digital economy. Among other things, the agreement included a global standard for minimum taxation of at least 15 % for multinational groups. In December 2022, the EU adopted a directive containing the specific regulations that EU member states had to introduce in order to comply with the OECD agreement’s global standard. The bill implements the OECD agreement and the EU directive’s regulations on minimum taxation into Danish law.
The OECD agreement on taxation of the digital economy is based on two tracks:
– Track 1 ensures that the largest and most profitable global corporations, including tech giants, are required to pay some of their taxes in the states where their users are based.
– Track 2 involves a global standard for minimum taxation of 15 % for all large multinational or national groups with a turnover of at least EUR 750 million (approx. DKK 5.6 billion).
Who will be subject as a result of the bill?
Subject to the bill are group entities that are part of a multinational group or a large national group where the group had an annual turnover of at least EUR 750 million (approx. DKK 5.6 billion) in two of the last four financial years preceding the current year.
The calculation of the effective tax rate
The calculation of the effective tax rate is based on a specific calculated tax base, determined on the basis of the consolidated financial statements for the group, and an assessment of the taxes included in the calculation of the effective tax rate. The EU Directive requires the introduction of a system with two coherent rules. This will be accomplished by introducing an Income Inclusion Rule (IIR) and an Undertaxed Profit Rule (UTPR). The latter applies in cases where the ultimate parent entity in the group is located in a state that has not introduced regulations corresponding to the OECD agreement.
The bill also contains provisions on a qualified domestic top-up tax (QDTT). The provisions entail that Danish group entities that are not effectively taxed at 15 % are subject to an additional tax so that the total effective tax rate is 15 %. For Danish group entities in multinational groups, this means that the additional tax imposed on these group entities accrues to Denmark and not abroad.
Entry into force
The law is proposed to enter into force on 31 December 2023 with effect for financial years beginning on or after 31 December 2023.
Bachmann/Partners advises on tax matters and constantly keeps up to date with the latest legislation and practice.
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 / pha@bachmann-partners.dk