Denmark: Exemption for interest income, interaction with thin capitalization rules

Denmark: Exemption for interest income

The Court of Justice of the European Union (CJEU) issued a judgment in a case concerning the Danish corporate tax rules that provide an exemption from tax for interest income on loans provided by a Danish resident company to its Danish affiliated companies, if the corresponding interest expenditure deduction is denied the debtor because of application of the thin capitalization rules. Such an exemption from tax is denied when the affiliated debtor company is a resident in another EU Member State.

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The CJEU concluded that this difference in tax treatment constitutes a restriction on the EU freedom of establishment, and was not justified under either the balanced allocation of taxing rights or tax evasion. The judgment does not follow the opinion of the CJEU Advocate General.

The case is: Masco Denmark and Damixa 

 

Read a December 2016 report [PDF 75 KB] prepared by KPMG’s EU Tax Centre

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