Beware - a new Danish provision on shareholder loans means that it can become quite expensive for a shareholder to have a loan in his company - a so-called shareholder loan.
The starting point is that shareholder loans are prohibited under the Danish Companies Act and must be repaid. Nevertheless, a survey by the Danish tax authorities shows that several companies extend loans to their shareholders. Consequently, the Danish Parliament has adopted section 16E of the Tax Assessment Act which deals with the regulation of shareholder loans in a tax context. The result of the regulation is that a shareholder loan will - with a few exceptions - be re-categorized either as salary or as a dividend paid to the shareholder.
The re-categorization only takes place, if the shareholder is a natural person with decisive influence over the company pursuant to section 2 of the Tax Assessment Act. The regulation encompasses both resident and foreign shareholders as long as the decisive influence is present.
Taxation of a shareholder loan is not tantamount to it being legal in a corporate law context. This means that the shareholder might end up in a situation where the loan is being taxed and furthermore the taxpayer has to repay the loan.
This article explains the regulation and the way decisive influence has to be understood. An analysis of case law on the exceptions to the regulation is carried out and finally a few remarks on the tax consequences for the shareholder - being resident in Denmark or abroad - are explained.Intertax