International tax - Danish subsidiary

International tax - Danish subsidiary

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Hi,

I have a question about the tax treatment of an intercompany balance in Denmark.

I work for a company in the UK that has a Danish subsidiary, there is a historical balance of around £500K which is a debtor in the UK and a Creditor in Denmark - it represents startup loans given to the Danish sub many years ago that the Danish sub has not been able to pay down due to lack of profit. Unfortunately the UK parent has become insolvent and will be wound up. The Danish sub will, after restructuring, carry on and will trade profitably (four employees and an office, reduced to one employee working from home).

My question is - when the parent company disappears, the intercompany creditor in the Danish entity will surely become a P&L gain of £500K, if we were to use this to increase the share capital, would it still be a taxable gain?

....I'm presuming that this would represent two separate transactions - the first being the writing back of the intercomapny account which would give rise to £500K taxable gain and then the use of the remaining profit to increase share capital would be a separate thing?

...my boss thinks we could escape the tax by increasing the share capital......I don't think so and therefore the Danish sub is pretty much in the same boat as the parent company as it wouldn't be able to pay the tax bill.

Replies (3)

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By User deleted
24th Sep 2014 06:54

The answer depends on what the Danish tax laws say and which accounting standards the Danish company follows. Nothing to do with the UK laws.

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By RFL H
24th Sep 2014 08:38

Newco in Denmark and Losses b/f

Why do you need to keep the existing Danish company?

Have a word with your Danish accountants to see if you could dissolve it.

Failing that ask them if those start up costs are still losses b/f.

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By andrew.hyde
24th Sep 2014 11:07

As Hamlet might have put it

CG or not CG? That is the question.

Or perhaps it isn't.  Surely if you put the UK company into liquidation then the liquidator is obliged to look into recovering the £500K from the Danish sub.  Assuming the sub can't pay, then potentially that company is insolvent as well.  In those circs it seems that the liquidator would be in effective control of what happened to the Danish sub, unless I've missed something.

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