Guide to m&a tax 2022

ii 
related Party Debt
Generally, all Danish resident companies are subject to the Danish transfer pricing rules. These rules prescribe that all transactions between a Danish company and 
related companies must satisfy the arm’s length principle (i.e. the prices and terms must reflect those that could be applied in a transaction with a third party). In most 
cases, the company must prepare documentation that supports the basis for the pricing.
The transfer pricing rules are relevant in relation to many aspects of a transaction, such as shareholder loans, intercompany guarantees, cash pool arrangements 
and transfer of goods, services and assets. The practice of the tax authorities is somewhat unclear, and each case must be examined on its specific facts and 
circumstances. Caution is advisable when determining the basis of the prices, especially where large amounts are involved.
iii Debt Pushdown
It is possible to introduce or increase leverage in a Danish company after the transaction (debt pushdown). There are various ways to complete the debt pushdown, 
and the Danish interest limitation rules should be considered. As these rules are complex, local advice should be sought to ensure that a debt pushdown 
will be effective.
d. Hybrid Instruments
Generally, amounts registered with the Danish Register of Companies are classified as equity. If an amount is not registered as equity, it is generally characterised as a 
loan even when it carries a right to participate in profits. Conversely, registered preference shareholders are always considered equity investors even where they are not 
entitled to participate in excess liquidation proceeds.
A subordinated debt is not regarded as share capital. Convertible notes are always regarded as loans until conversion. As a general rule, payments made before 
conversion are taxed as interest. After the conversion, the yield is taxed as a dividend.
Denmark has special anti-avoidance rules which applies to hybrid instruments, preventing double non-taxation.