In February, the Danish Tax Agency issued a notice regarding an upcoming targeted initiative aimed at major shareholders who appear to have low levels of private expenditure, in order to ensure the correct payment of tax.
The Danish Tax Agency has now sent letters to major shareholders in the country’s small and medium-sized companies, notifying them that they have been selected for an audit. And although the letters may give cause for concern, Grant Thornton’s advice is to keep a cool head.
This is because the Danish Tax Agency’s basis for calculating personal expenditure has several shortcomings.
Shortcomings in the Danish Tax Agency’s calculation method
The Danish Tax Agency’s calculation of private consumption is based solely on the main shareholder’s asset information and taxable income.
Consequently, only income and asset information that has already been reported is included, which means that neither taxable, tax-exempt nor non-taxable income is taken into account.
Furthermore, the Danish Tax Agency’s calculation method does not take into account other private-law arrangements that affect private consumption. This also applies to the circumstances of a spouse or cohabiting partner, which may be relevant to the overall calculation.
Risks associated with low personal expenditure for major shareholders
As a major shareholder, the letter from the Danish Tax Agency may prompt you to consider whether you should carry out a retrospective review for the years 2023 and 2024.
If your personal expenditure is indeed low or negative, and there is no immediate explanation for this, it would be natural to have this investigated further. Low or negative personal expenditure would, in fact, give the Danish Tax Agency grounds to increase your assessed income.
Practice shows that, even if no errors or omissions can be identified in the company’s accounts, the Danish Tax Agency may increase the assessed income in cases where the main shareholder has a calculated low level of personal expenditure.
Get an overview of your personal accounts
In the Danish Tax Agency’s letter, you, as the main shareholder, are required to provide documentation for all your financial transactions – including those dating back several years – if the Danish Tax Agency suspects that your personal expenditure is too low.
If you already have a personal account (also known as an income and assets statement) prepared by an accountant or financial adviser, this will typically already form a natural part of the ongoing monitoring.
However, if, as a majority shareholder, you do not currently have a personal account prepared with professional assistance, it may be worth doing so going forward. That way, you can easily document your personal finances should the Danish Tax Agency request further information.
Do you need advice on your personal accounts?
Grant Thornton’s tax department is always on hand to help you if you need advice or simply want reassurance that everything is in order.
Our tax experts have extensive experience with tax matters relating to personal expenditure statements and breaches of accounting principles.
Contact us today for a non-binding chat.
