Share exchange is a process where existing shares in one company are exchanged for new shares in another company, often in connection with subsidiary and holding company structures. The rules are found in the Capital Gains Tax Act (ABL § 36) and provide the possibility for tax deferral. Share exchange can be carried out with or without approval from the Danish Tax Agency.

Share exchange can be tax-free, meaning you are not taxed at the time of the exchange itself. The taxation is deferred, so you only pay tax when you later sell the new shares. This provides flexibility in structuring the corporate setup without triggering immediate taxation.

The approval system is used when the objective conditions cannot be met, or if you want a binding clarification from the Danish Tax Agency. In this system, the Tax Agency assesses whether the exchange is driven by sound business reasons. This way, you can obtain certainty that the exchange will be carried out tax-free before the transaction takes place.

The Tax Agency particularly examines whether valid business reasons exist and not merely a desire to avoid or defer tax. Emphasis is placed on the company's circumstances, concrete plans, and economic considerations, while purely private interests are not sufficient.

Under the so-called objective system, the exchange can be carried out without application if certain conditions are met. It is required, among other things, that the exchange occurs at market value and that the acquiring company obtains voting majority. If all conditions are met, a tax-free exchange can be carried out directly without regulatory approval. After completing the share exchange, the holding requirement must be observed.

A central requirement is that the acquiring company may not sell the shares in the acquired company for a period of three years after the exchange. If the shares are disposed of too early, the tax exemption lapses, and the exchange is treated as a taxable realization. The holding requirement is introduced to ensure that the exchange has a genuine business purpose and is not merely used to defer tax.

It means that the value of the shares and any cash consideration you receive must correspond to the market value of the shares you give up. This prevents artificially distorting values to obtain tax advantages. If market value is not observed, the exchange is considered taxable.

If the conditions – such as the holding requirement or the market value condition – are not met, the exchange is treated as a taxable share exchange. This means that any gain is taxed immediately, and the deferral lapses. For the shareholder, this can result in an unexpected tax payment, while the company risks that operating assets and shares are deemed sold and thus become taxable.