The new three-party coalition government in Denmark has proposed a reduction of the estate and gift tax in connection with ownership transfers of business enterprises.
On 14 December 2022, the government presented its new government platform “Responsibility for Denmark”. The government platform sets the course for the next government term. A common theme of the government platform is reforms that are to contribute to strengthening the Danish economy with concrete growth initiatives in difficult times when both inflation, increasing interest rates and the war in Ukraine create economic uncertainty.
From 5 % to 15 % to 10 %
In 2020, the government increased the estate and gift tax from 5 % to 15 %. Due to the substantial increase of the tax, many chose not to carry out an ownership transfer.
Under the headline “Growth” in the government platform, the new coalition government contemplates a reduction of the estate and gift tax from 15 % to 10 %, which is thus a 50 per cent reduction of the increase that was adopted in 2020.
An ownership transfer is when a company is transferred to one or more persons who will continue the operation of the company. In connection with an ownership transfer of family-owned companies, the ownership shares are normally transferred to family members, but ownership may also be transferred to others, including employees or foundations.
As company transfers as part of an ownership transfer normally include a gift element, the transfer is subject to estate and gift tax. It is this tax that the government wants to reduce.
New valuation model
The government also proposes a new model for company valuations. Today, companies may apply two circulars (the share and goodwill circular) which together provide an indicative basis for valuation of the company prior to an ownership transfer. In 2021, a group of experts set up by the parties behind the 2020 Budget presented a report on valuation in connection with ownership transfers. The expert group made recommendations which were to better reflect the company’s actual market value. At present, it is uncertain whether the new valuation model will be based on the expert group’s recommendations, or whether the Ministry of Tax will prepare a new valuation model.
When will the rules be adopted?
As the government platform only sets the course for the next government term, it is currently uncertain when the government will present a proposal for reduction of the estate and gift tax to 10 %. As the coalition government is de facto a majority government, and as a reduction of the tax on ownership transfers was a key issue for Venstre (the Liberal Party), Horten expects that the reduction will be implemented in the present government term. It is also uncertain when the government will present the future valuation model in connection with ownership transfers. Horten follows the development in the area closely.
Horten considers it positive that the government wants to improve conditions for ownership transfers of companies as it will generally contribute to increased growth and employment. The new valuation model is in itself an important part of the equation as a proper model for valuations which is easy and predictable to apply is an essential precondition for the attractiveness of carrying out an ownership transfer.