Taxation of succession

Date 20 dec. 2011
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From 1 January 2012, the percentage limit of financial assets in connection with assets transferred through succession will be reduced from 75% to 50%.


According to preparatory work, the purpose of the change is to give companies an incentive to use disproportionately large passive capital stocks in order to promote economic growth, employment and welfare.


At first, the motion was intended to reduce the limit to 25%. After the business community expressed concern regarding this modification, an agreement was made on the 19 December between the government and the Conservative Party, which means that the limit is only reduced to 50%.


The rules at present

According to the current rules, it is possible to transfer assets in a company by succession to closely related family members, employees or similar. Transfer by succession entails that the taxation will be postponed and therefore, the transfer will not be taxed. Instead the buyer assumes the tax position of the seller. The buyer will therefore be taxed when the assets are sold or transferred to a person for whom the rules of succession do not apply.


The condition for transferring by succession is that the transfer should constitute a minimum of 1% of the share capital, and that the company is not a so called “money bin”.


A money bin is defined as a company whose essential assets are passive investments or property rentals. Today, succession may take place if a maximum of 75% of the company’s revenue or assets relate to investments or property rentals.

 

The new Finance Act

From the 1 January 2011, the rules regarding money bins will be changed, so that transfer by succession may only take place if a maximum of 50% of the company’s revenue is related to investments and/or property rentals. The current limit of 75% will thus be reduced to 50%.


The change in the rules regarding money bins will therefore result in a significant limitation in a company’s access to enforce tax-free successions. This means that tax must be paid immediately, while today it is postponed due to succession.


The result of the new rules

The consequence of this change is that some companies’ liquidity may be burdened as a result of the fact that the owner must withdraw funds from the company to cover taxation which, according to current rules, may be postponed.


On 7 December 2011, the Minister of Taxation stated that a proposed amendment will be made regarding a transitional agreement, which will give companies the opportunity to choose, for e period of time, if they want to be evaluated for a period of three or just for the latest year. However, such proposal has not yet been put forward.

 

 

If you have any questions or require additional information on the decision, please contact Partner Jakob Bundgaard (jbu@mwblaw.dk), Junior Associate Kim David Lexner (kdl@mwblaw.dk) or Junior Associate Maria Thomsen (mth@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 aft a reader’s use of the above as a basis decisions or considerations.