In a case handled by Bachmann/Partners Law Firm for a client, the National Tax Tribunal on 10 February 2023 ruled that a loan—granted from the client’s spouse’s company to the client—should not be considered disguised dividend to the client. As a result, the taxation imposed by the Danish Tax Agency on the client was entirely annulled.
A, the subject of the case, was married to B, who owned a holding company that in turn owned an operating company. B served as director of both companies. A was employed by the operating company and received a salary from it. In 2015, A took out a loan of DKK 300,000 from the operating company, which was recorded on an intercompany account. In 2016, the operating company entered bankruptcy proceedings. During the bankruptcy process, the trustee discovered that A had taken the loan in 2015. The trustee demanded repayment from A, which A complied with. The trustee also notified the Danish Tax Agency of the loan.
In 2019, the Danish Tax Agency ruled that A should be taxed on the 2015 withdrawal under Section 16 E of the Danish Tax Assessment Act concerning taxation of shareholder loans. The Tax Agency treated the amount as dividend income for A, despite A not holding any shares in the operating company.
A appealed the decision to the Tax Appeals Agency. In its draft decision, the Agency disagreed that A could be taxed under Section 16 E, as A had no ownership in the operating company. Nevertheless, the Agency concluded that A could still be taxed on the loan because there was no documentation demonstrating a genuine debt relationship between A and the company. Thus, the Agency recommended upholding the Tax Agency’s decision, albeit based on a different rationale.
A disputed that the loan did not constitute a real debt, arguing that it had been repaid and that the trustee had recognized it as a repayable obligation.
On 10 February 2023, the National Tax Tribunal ruled to overturn the Danish Tax Agency’s decision. The Tribunal concluded that the loan should not be taxed as disguised dividend to A. The ruling emphasized the trustee’s statement that it was a repayable amount, that it had been recorded on A’s intercompany account with the operating company, and that A had repaid the loan.
The decision highlights that trustees should carefully assess which loans need to be reported to the Tax Agency. In cases comparable to the above, there is no basis for reporting the matter to the Tax Agency. The ruling also signals that the Tax Agency should conduct a more thorough assessment, as Section 16 E did not apply and the loan was a genuine debt that did not result in taxable income for A—facts that should have been clarified during the Agency’s review.
Bachmann/Partners Law Firm handles appeals in all tax and duty-related matters. Inquiries can be directed to Christian Bachmann at +45 30 30 45 21 / chb@bachmann-partners.dk or Peter Hansen at +45 40 32 35 35 / pha@bachmann-partners.dk.
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