Exchange of class A shares with class B shares

Date 22 nov. 2010


In a binding response dated August 24 2010, the Danish National Tax Board stated, that an amendment of a company’s articles of association involving a change of the dividend preference for the class B shares does not result in fiscal consequences. Where a portion of the class A shares are changed to class B shares, the changed class A shares are subject to taxation.


The case in brief

A public limited company’s share capital was divided into class A shares and class B shares. The class A shares were assigned an increased voting power, (10:1), while the class B shares had been given cumulative dividend preference.


The public limited company wanted to amend the articles of association so that the class A shareholders were given an opportunity to re-register their class A shares to class B shares through an amendment of the articles of association.


The right to exchange the shares should give each shareholder a voluntary access to exchange his class A shares to class B shares, however, with a percentage limit to the number of class A shares that could be exchanged.


The public limited company also wished to abolish the dividend preference of the class B shares as the preference had no practical importance.


The decision of the National Tax Board

As regards the amendment of the articles of association, the National Tax Board followed the Danish Tax Authorities’ recommendations and motivation, and, subsequently, it was concluded that the exchange was actually a “barter” which was to be equated with purchase and sale subject to the Danish Capital Gains Taxation Act.


It was noted that the question had not previously been addressed.


Prior to the judgment, The Danish Commerce and Companies Agency had stated that the amendment of the articles of association was a replacement by re-registration. However, the National Tax Board found that the situation should be equated with purchase and sales of the shares. The National Tax Board based its decision on the fact that, in the concrete case, there was an individual agreement between the shareholder and the company saying that the shareholder had to sell his shares to the issuing company, while the terms of shares are changed generally according to legal practice on amendments of articles of associations.


With regards to the abolition of the dividend preference of the class B shares, the National Tax Board followed recent practice whereby amendments to articles of associations should be equated with transfer of shares when the shares, after the amendment, were considered to have a different identity. However, this is only the case when the amendment results in a displacement of assets between the shareholders. In this case, the conclusion was that an abolition of the dividend preference of the class B shares would have minimal importance, as the dividend preference had never had any practical meaning. Thus, the abolition would not result in displacement of assets and therefore the abolition of the class B shares’ dividend preferencedid not result in any fiscal consequences for the company or the shareholders. 


The consequences of the judgment

The National Tax Board considered the amendment to the articles of association to be equated with sale and purchase of the shares despite the fact that the Danish Commerce and Companies Agency found that it was a replacement by re-registration. In similar cases, this should be considered.



If you have any questions or require additional information on the judgment, please contact Jakob Bundgaard, Partner,, Henning Hedegaard Thomsen, attorney, or Kim David Lexner, Junior Associate,

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