The tax authority had increased Holding A/S’s taxable income by DKK 6,462,734 for the 2014 income year, as the establishment of a loan agreement resulting from a share transaction had not been recognised for tax purposes.
The amount related to calculated interest on a claim of DKK 100 million according to a promissory note issued by three companies to settle the purchase price for Holding A/S’s 50% shareholding in a foreign company. Subsequently, the three purchasing companies resold the shares in the foreign company to H8 ApS. H8 ApS was ultimately owned through companies by the same group of persons who owned Holding A/S and the first three purchasing companies. H8 ApS corrected the purchase price for the shares by entering into the issued promissory note of DKK 100 million, including accrued interest of approximately DKK 6.5 million.
Decision
The Tax Tribunal upheld the tax authority’s assessment.
The Tribunal found that the two transfers of shares in the foreign company, the issuance of the promissory note and the subsequent change of debtor to H8 ApS were undoubtedly not of a normal commercial nature. The transactions could only be carried out because the companies did not have conflicting financial interests as a result of their overlapping ownership structure. It had to be assumed that the buyer companies’ assumption of the significant debt obligation was unrealistic and therefore did not entail a real financial risk, but through the calculated interest income, which, as a result of the tax losses, was not taxed in Holding A/S, reflected the related companies’ desire to place a tax deduction in the purchasing companies that could be utilised in later income years. Recognition of the promissory note for tax purposes would thus be an expression of a clearly arbitrary allocation of taxable income in the companies involved.
Excerpt in English
“The purchasing companies thus did not obtain the usual ownership rights over the shares acquired by the purchasing companies in each of the two transactions for a purchase price in the order of DKK 100 million.
According to the available annual reports for the four purchasing companies, it is clear that none of them had the financial capacity to acquire the shares for such a purchase price adjusted for a debt obligation, let alone to pay interest on such a debt obligation. H1 A/S had no third-party security for the payment of the significant claim in the form of a guarantee or similar, which was therefore effectively worthless. The due date of the substantial promissory note issued in connection with the first of the share transfers on 20 December 2013 was set for 17 January 2017 and was subsequently postponed by two addenda to the promissory note, most recently by an addendum in December 2019, to 1 January 2024, i.e. more than 10 years after the promissory note was issued. It was stated at the court hearing that the loan has subsequently been repaid on an ongoing basis in line with the sale of the shares in the [foreign] company, where a sales process began in 2022.
On this basis, the National Tax Tribunal finds that the two transfers of shares in the [foreign] company, the issuance of the promissory note and the subsequent change of debtor to H8 ApS were undoubtedly not of a nature that could be considered normal business transactions. The transactions could only be carried out because H1 A/S, H5 ApS, H4 ApS, H3 ApS and H8 ApS did not have conflicting financial interests as a result of their overlapping ownership structure. It must be assumed that the buyer companies’ assumption of the significant debt obligation was unrealistic and therefore did not entail a real financial risk, but through the calculated interest, which, as a result of the tax losses in the company, was not taxed in H1 A/S, reflected the related companies’ desire to place a tax deduction in the purchasing companies that could be utilised in later income years. Recognition of the promissory note for tax purposes would thus be an expression of a clearly arbitrary allocation of taxable income in the companies involved for the 2014 income year.”
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