Guide to m&a tax 2022

e. Other Instruments
This section is left intentionally blank.
21 
Denmark
RETURN TO CONTENTS PAGE

---

TAXAND GLOBAL GUIDE TO M&A TAX 2022
f. 
 earn-outs
Earn-outs are generally used in transactions where the parties of the transaction cannot agree on a value or where it is desirable to keep the old management/old 
shareholders involved with the company for a certain period following closing.
A payment is generally qualified as an earn-out for Danish tax purposes according to the Danish Tax Assesment Act art. 12 B if there is uncertainty of the total amount 
of the earn-out or if there is uncertainty about the duration of the earn-out.
An earn-out is taxed in accordance with art. 12 B if the earn-out is paid by one payment on closing and by several yearly payments after closing. If the earn-out is paid 
by one payment on closing and only one payment after closing the earn-out is not considered a periodic payment covered by art. 12 B.
The parties to a transaction must capitalise the value of the earn-out on closing and keep account of the capitalised value during the lifetime of the earn-out. The 
capitalised (the net present) value of the earn-out payment will be included in the sales prices of the underlying asset. Hence, if the underlying asset is shares, this 
means that the earn-out is to be treated as capital gains on the sale of the shares. If the payments under the earn out exceed the capitalised value, the seller will be 
taxed on the excess amount as ordinary taxable income and the buyer will receive a corresponding deduction in the taxable income.
As a main rule, an agreement between non-related parties should be recognised for Danish tax purposes by the Danish Tax Authorities.
According to Danish case law, an earn-out payment from the buyer to the seller of a company may be (fully or partly) requalified from a (tax exempt) capital 
gains event to salary if the earn-out payment(s) are primarily conditioned on the continued employment of the seller in a period after the sale. Local advice 
should be sought.
22 
Denmark
RETURN TO CONTENTS PAGE

---

TAXAND GLOBAL GUIDE TO M&A TAX 2022
7. DIVESTITURES