The National Tax Tribunal overturns tax increases in a case concerning alleged disguised dividends and taxation of shareholder contributions

The case arose from a series of bank transfers between a company and its 79-year-old sole shareholder.

The company held cash reserves of approximately DKK 20 million. The transfers were motivated by a desire to avoid negative interest on the company’s bank deposits. The funds were accordingly deposited into the shareholder’s account, as the bank did not charge negative interest on accounts held by natural persons. The money was transferred back to the company twice a year in connection with the preparation of the year-end accounts for both the company and the shareholder.

The Danish Tax Agency treated the transfers from the company to the shareholder as dividends. At the same time, it treated the transfers back to the company as taxable contributions.

The result was that both the shareholder’s and the company’s taxable income were increased by a combined total of just under DKK 200 million, even though it was the same sum of approximately DKK 20 million that had simply been moved back and forth.

With Plesner’s assistance, the sole shareholder succeeded in demonstrating that the transfers did not constitute final distributions but were rather temporary deposits of the company’s funds into the shareholder’s account. On that basis, the National Tax Tribunal found that neither the shareholder nor the company was liable to tax on the transfers.

The cases have not been brought before the courts, and the company and the shareholder can therefore breathe a sigh of relief. The tax claim would have led to the bankruptcy of both the company and the shareholder had the decision not gone in their favour.