The Principle of Tax Succession

A central feature of tax-free restructuring is succession. This means that the taxation of assets and shares is deferred when transferred to the receiving company. Assets and shares retain their original acquisition date and value.

For shareholders, this means the new shares are considered acquired under the same conditions as the old ones. Taxation is only triggered when the shares or assets are later disposed of, unless specific legal requirements are breached, which may cause taxation to occur earlier.

Models of Tax-Free Restructuring

Merger

Two or more companies merge into one entity, often to reduce costs, strengthen market position, or simplify ownership structures. Assets and liabilities are transferred at tax values, and shareholders receive shares instead of cash consideration.

Demerger

The opposite of a merger – one company is split into two or more. This is typically used to separate business areas or shareholder interests. Assets and liabilities are transferred at tax values, and shareholders receive new shares in exchange for their previous ownership.

Contribution of Assets

Part of a company’s assets and liabilities are transferred to another company in exchange for shares. Often used when a business unit needs to be placed in a separate company.

Share Exchange

Shareholders exchange their shares in one company for shares in another. This is commonly used when establishing holding company structures.

In all cases, tax-free treatment only applies if values are carried forward at unchanged tax values, consideration is primarily in shares, and the transaction is commercially justified.

Tax-Free Business Conversion

A business conversion is a specific type of restructuring where a sole proprietorship or partnership is transformed into a company (ApS or A/S).

In a tax-free conversion, all assets and liabilities are transferred at tax values, and the owner receives shares in exchange. No tax is triggered on built-up reserves at the time of conversion.

To qualify, certain conditions must be met, including that the entire business is transferred, deadlines are observed, and no cash consideration is paid (beyond small adjustments).

Methods of Implementation

Danish law offers two approaches:

Objective Conditions: If all legal requirements are met, the restructuring can be completed directly without prior approval.

Approval System: For complex or unusual cases, approval from the Skattestyrelsen is required.

Regardless of the method, correct registration in TastSelv DIAS is mandatory. Failure to comply may result in taxation of the transaction.

Documentation, Deadlines, and the Holding Rule

Documentation typically includes:

Opening or demerger balance sheets

Lists of assets and liabilities

Articles of association amendments

Shareholder registers and accounting data

Certain models are subject to waiting periods (holding rule), especially when done without prior approval. For instance, selling shares within three years after a demerger, share exchange, or asset contribution may retroactively trigger taxation.

Anti-avoidance rules also apply to prevent restructurings carried out purely for tax purposes. Breaching these rules can make the entire transaction taxable.

Loss Relief and Source-Specific Losses

In most cases, companies lose the right to carry forward existing tax losses. Only in specific situations can losses be preserved and offset against future income. This applies both to general tax losses and source-specific losses.

Preserving loss relief requires compliance with legal conditions, particularly rules on ownership continuity.

Why Planning and Professional Advice Are Crucial

The rules on restructuring and business conversion are highly complex. Even minor mistakes may trigger immediate taxation or revocation of approvals.

Successful execution requires thorough pre-analysis, the right choice of model, precise documentation, and adherence to deadlines. With professional guidance, companies can restructure securely, aligning corporate structure with strategic goals while safeguarding tax neutrality and shareholder value.

FAQ – Tax-Free Restructuring (English)

What is a tax-free restructuring?

It is a change in the company structure that does not trigger taxation for the owners, provided that all legal requirements are met.

Which models can be used?

Merger, demerger, share exchange, contribution of assets, and business transformation.

What is the principle of succession?

It means that assets and shares are carried forward with the same tax values and acquisition dates, thereby deferring taxation.

Why is documentation important?

Incomplete documentation or failure to meet deadlines can result in the restructuring becoming taxable.

Why should you seek professional advice?

Because the rules are complex, and errors can have significant tax consequences.

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