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Denmark To Remove Special Tax Rules For Banks

Friday, May 10, 2019

On May 2, 2019, the Danish Tax Ministry announced that banks' right to deduct hybrid core capital for tax purposes will be removed.

Hybrid core capital is capital that exhibits elements of both equity and debt, and the Danish Government introduced the special deduction for such capital during the financial crisis to support the banking sector.

However, Denmark has decided to rescind this special deduction to ensure that its tax rules do not breach European Union laws on state aid, given that the capital position of Denmark's banks has recovered since the crisis.

"The special right of deduction, according to the European Commission, may lead to a special treatment by the financial sector which has raised the issue of state aid," the ministry stated. "In order to ensure that the rules are in accordance with the state aid rules, the Commission has asked Denmark to amend the law."

According to the ministry, the cancellation of the special deduction will increase tax revenue by DKK175m (USD26m) in 2019, and DKK350m per year thereafter.