Bill to increase payroll tax for the financial sector

Date 15 apr. 2008
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The Danish Government and Dansk Folkeparti (the Government’s cooperative partner) (hereinafter referred to as the Parties) have 1 March 2009 entered into an agreement on the package of measures to be implemented in the spring, version 2.0.  In that connection, a draft bill to amend the Value Added Tax Act and the Payroll Tax Act has been submitted to consultation.

 

According to the bill, the proceeds must be sensitive to economic fluctuations, so that in years where the financial sector is less profitable, the sector can pay a smaller payroll tax.  On the other hand, it must pay a larger payroll tax when profits are high.

 

In this connection, the Parties agreed to increase payroll tax for companies in the financial sector as from 1 January 2013.

 

Governing law concerning payroll tax for the financial sector

In principle, under governing law, companies pay payroll tax when they have VAT free activities.

 

Payroll tax is calculated based on four different methods/rates, depending on the company type in question.

 

Method 1 covers lotteries, Danske Spil (the Danish organisation for state-organised pools and lotteries) and other gambling companies, tourist information offices, organisations, funds, associations, including non-profit housing associations, lodge societies etc., and finally public corporations not included in method 4. The basis/rate of calculation for method 1 is 3.08% of the payroll cost + 2.5% of 90% of the payroll cost.

 

Method 2 covers companies in the financial sector, which means companies with activities concerning insurance, deposit and lending operations, credit services, pension savings, investment administration, payments transfer and securities or currency trading. The basis/rate of calculation for method 2 is 5.08% of the payroll cost + 4.5% of 90% of the payroll cost.

 

Method 3 covers companies that publish or import news papers. The basis/rate of calculation for method 3 is 2.5% of the news paper sales value.

 

Method 4 covers other companies liable to payroll tax. The basis/rate of calculation for method 4 is 3.08% of the payroll cost with the addition of profits or with the deduction of losses pursuant to the Payroll Tax Act Section 4(1).

 

 

Contents of the bill

The bill involves a change in the calculation of payroll tax basis after method 2 (companies in the financial sector), in that the company’s profits are to be included in the calculation, as in method 4. Though, the profits are to be calculated on a different basis than in method 4, in that no deduction is granted for reserves, interest income and dividend earnings etc.

 

If the bill is passed, it will imply an extension of the payroll tax basis, meaning that the payroll tax will be calculated as 9.13% of the company’s payroll cost with the addition of 1.25% of the company’s profits calculated according to the rules for taxable income.

 

According to the bill, the profits are calculated as positive taxable income before deduction of the payroll tax, and it must be calculated before any joint taxation with other companies pursuant to the Corporation Tax Act Sections 31 and 31 A.

 

According to the bill, the 1.25% additional tax is only to be paid in years with profits. In those cases where a company has a negative taxable income, the tax basis cannot be negative, in that losses are not included in the calculation.

 

Since only some financial companies are liable to pay corporation tax, it has likewise been proposed to increase the payroll tax for companies that do not pay corporation tax. For these companies, the bill implies an increase of the effective rate from 9.13% to 10.5%. (6.45% of the part of the tax basis that constitutes the company’s payroll tax with an additional 4.5% of 90% of the payroll tax). The increase is not affected by any realised profits.

 

The reason for the increase is that equal rights between companies in the financial sector are hereby obtained, regardless whether the companies are liable to pay corporate tax or not.

 

 

Consequences of the bill

If the bill is passed, it would entail a ”minor” administrative burden for companies liable to pay corporation tax, in that they must in the future calculate 1.25% of their taxable profits and add the number to the other calculations to find the total tax amount.

 

With the bill, the payroll tax for companies liable to pay corporate tax is increased with 1.25% of the company’s positive taxable income, before any joint taxation pursuant to Sections 31 and 31 A of the Corporation Tax Act. As a consequence, these companies shall only pay the increased payroll tax in years where such taxable profits are realised.

 

Financial companies not liable to pay corporate tax shall pay an increased payroll tax of 1.37% regardless of any realised profits.

 

 

 

If you have any questions or require additional information on the package of measures to be implemented in the spring, version 2.0, please contact attorney Dan Moalem (dmo@mwblaw.dk) or attorney Henning Hedegaard Thomsen (hht@mwblaw.dk).

 

 The above does not constitute legal counseling, and Moalem Weitemeyer Bendtsen does not warrant the accuracy of the information. With the above text, Moalem Weitemeyer Bendtsen has not assumed responsibility of any kind as a consequence of a reader’s use of the above as a basis of decisions or considerations.