Tax accounting is a branch of accounting that focuses on presenting tax information. Tax accounting ensures that a business or an individual complies with tax rules and regulations and pays the correct tax on time.
Frequently Asked Questions About tax accounting
What is tax accounting?
Tax accounting is part of the company's annual accounts that shows the calculation of the tax for the year, including deferred tax, tax on the result for the year and any differences between accounting income and taxable income.
Who must prepare tax accounting?
Tax accounting must be prepared by all businesses and companies that are tax liable to Denmark and carry on economic activity.
What is the difference between current tax and deferred tax?
Current tax and deferred tax are two different types of tax items that arise as a result of differences between accounting and tax treatment of income and expenses.
Current tax: The tax that is calculated on the taxable income for the year and must be paid to the Danish Tax Agency for the relevant year. It appears from the company's tax statement and is typically paid via on-account tax and residual tax.
Deferred tax: Deferred tax arises when there are differences between the accounting and tax values of assets and liabilities – differences that will be evened out in the future. This means that the company will either pay more or less tax in future years as a result of these temporary differences.
What role does tax accounting play in jointly taxed groups?
In jointly taxed groups, tax accounting plays a central role, because it forms the basis for calculating both the individual companies' and the group's total taxable income.
1. Calculation of each company's taxable result
Each company in the group must prepare its own tax accounting, where it calculates its own taxable income or tax loss according to the tax legislation.
2. Aggregation into the group's joint taxation income
When the individual companies' results have been calculated, they are combined in a joint taxation statement. Profit in one company can be used to cover loss in another, and the total result forms the basis for calculating the group's total corporate tax.
3. Allocation of tax between the companies
The tax accounting ensures that it can be documented how the tax is allocated internally within the group, for both companies with profit and companies with loss.
4. Documentation for the Danish Tax Agency
The tax accounting constitutes the documentation for how the group's total taxable result has been calculated, and how the joint taxation rules have been applied in practice.
Can tax accounting be changed after year-end?
Tax accounting can be changed after year-end, but only within the limits set by the tax legislation.
If a company discovers errors, omissions or receives new information that affects the taxable income, it can correct the tax accounting and submit an amended tax return form to the Danish Tax Agency.
As a general rule, a tax assessment can be reopened for up to three years after the end of the income year (ordinary reopening deadline).
Extraordinary reopening can take place if serious errors have been made, new information has emerged, or there are special circumstances, for up to 10 years after the end of the income year.
Is tax accounting part of the Danish Tax Agency's audit work?
Yes, tax accounting is a central part of the Danish Tax Agency's audit work, because it functions as documentation for how a business or a company has arrived at its taxable income.
When the company submits its tax return form, the tax accounting must be enclosed or be available if the Danish Tax Agency requests it.
If the Danish Tax Agency finds errors or omissions, it can request further information from the company, correct the taxable income or, in certain cases, initiate an actual tax or transfer pricing audit.
Disclaimer
As the above is for guidance purposes only, we accept no liability for decisions that may be made based on the above without prior individual advice. We accept no liability for errors and omissions.