Contents

This section describes

  • which assets are determined according to the inventory principle
  • the determination method of the inventory principle, including conversion of acquisition amount and consideration into cash.

The section covers

  • Application (Section 15(3), Item 1 of PAL)
  • Determination (Section 15(3), Items 1-4 of PAL)
  • Conversion of acquisition sum and consideration into cash value (Section 15(3), Items 2-4 of PAL)
  • Conversion of market value of the non-cash part of acquisition sums and consideration
  • Commencement of tax liability (Section 15(3), Item 7 of PAL)
  • Cessation of tax liability (Section 15(3), Item 8 of PAL)

 

Application (Section 15(3), Item 1 of PAL)

The inventory principle is applied when determining the bases of taxation for gains and losses on the following assets:

  • Bonds, mortgages and other claims
  • Financial contracts
  • Investment certificates
  • Shares in limited companies
  • Shares in private limited companies
  • Share certificates and
  • Convertible bonds as well as
  • Real property.

See also

See sections

  • C.2.3.3, Yields from different assets and
  • C.2.3.2.1, Basis of taxation for real property.

Gains and losses on debt

The inventory principle also applies to gains and losses on debt. See section C.2.3.4, Gains or losses on debt.

 

Determination (Section 15(3), Items 1-4 of PAL)

 

Assets owned during the entire year of taxation

If the asset has been owned during the entire year of taxation, gains and losses should be determined as the difference between the value of such asset at the end of the year of taxation and the value of the asset at the beginning of the year of taxation. See Section 15(3), Item 1 of PAL.

 

Assets acquired during the year of taxation

If the asset is acquired during the year of taxation, the acquisition sum of such asset must be converted into cash value. Gains or losses are determined as the difference between the value at the end of the year and the acquisition sum converted into cash value. See Section 15(3), Item 2 of PAL.

 

Assets disposed of during the year of taxation

If the asset is disposed of during the year of taxation, the consideration for such asset must be converted into cash value.

Gains or losses are determined as the difference between consideration converted into cash value and the value at the beginning of the year of taxation. See Section 15(3), Item 3 of PAL.

 

Assets both acquired and disposed of during the year of taxation

If the asset is both acquired and disposed of during the same year of taxation, gains and losses must be determined as the difference between the consideration converted into cash value and the acquisition sum converted into cash value. See Section 15(3), Item 4 of PAL.

 

See also

See also section C.1 Year of taxation

Conversion of acquisition sum and consideration into cash value (Section 15(3), Items 2-4 of PAL)

When determining the basis of taxation for an asset, both the acquisition sum and the consideration must be converted into cash value.

 

The rules for conversion into cash value are set out in Sections 12-18 in Order no. 1540 of 13 December 2007 on rules in the Danish Pension Investment Return Tax Act on foreign banks and pension providers and on compensation disbursements.

 

Acquisition sums and consideration are converted into cash value by adding the cash part of the transfer sum and the market value of the remainder of the transfer sum.

 

The conversion of acquisition sums and consideration is based on the market value of the asset in question. For bonds, shares in limited companies and other listed securities, this is the official market price at the time of transfer.

 

The transfer sum converted into cash must be distributed between the different assets included in the transfer, e.g. real property, operating equipment or goodwill.

When transferring assets between parties with different interests, the distribution can normally be based on the transfer sum agreed by the parties.

 

This means that the agreed price can be used directly as cash value if it is documented or rendered probable that the:

  • asset has been transferred at market price for cash transfer, and 
  • return and conditions do not differ from the market conditions for financing the type of assets in question.

 

Conversion of market value of the non-cash part of acquisition sums and consideration

When converting the cash value of the non-cash part of the acquisition sum and consideration, the market value at the time of transfer is applied.

 

The non-cash part of the acquisition sum and consideration must be converted according to the following principles set out in Sections 12-18 in Order no. 1540 of 13 December 2007 on rules in the Danish Pension Investment Return Tax Act on foreign banks and pension providers and on compensation disbursements:

 

a)  Loans granted in the form of listed bonds must be assessed at market price.

b)  Cash loans obtained in connection with the transfer of real property and which are offset by listed bonds must be assessed at the nominal value of the loan. If the cash loan is not obtained in connection with the transfer, the market value must be assessed at the market price of the underlying bonds.

c)  Index-linked loans must be assessed at the market price of the underlying bonds multiplied by he index factor applicable at the time of transfer.

d)  Estimated mortgage loans which are subsequently disbursed in cash must be assessed at the market price that applies on the day on which the underlying bonds are sold. Estimated mortgage loans which are subsequently transferred to the borrower's account with VP Securities Services (Værdipapircentralen) must be assessed at the price that applies on the day on which the bonds are transferred.

e)  Bonds listed on a stock exchange in another country within the EU/EEA or an exchange which is a member of or an associated member of the Fédération Internationale des Bourses de Valeurs (FIBV) must be assessed at the price at which the bonds are listed.

f)   The same applies to bonds publicly listed on another market which is publicly recognised, operating regularly and open to the public.

g)   Loans against security carrying interest based on a fixed percentage of the outstanding debt at any time and where the outstanding debt is reduced over a fixed number of years agreed in advance by instalments of the same amount or by increasing instalments must be assessed at the market value. The table material published quarterly by SKAT in a Danish Ministry of Taxation notice can be used as a guide, however any special conditions should be taken into consideration.

h)  Foreign loans with the exchange rate guaranteed by the government with a fixed low interest rate for a period, following which period the outstanding debt is refinanced by obtaining a bond loan, must be assessed in the first period at the market value. For disposal of the property after the fixed period, the market value stated under Items a-f applies.

i)   Other loans which are converted into market value must be assessed following the same principles as loans against security, cf. Item g. The table material published quarterly by SKAT in a Danish Ministry of Taxation notice can be used as a guide, however any special conditions should be taken into consideration.

j)   For loans which can be redeemed at par, a price above 100 can normally be applied only when dictated by the interest on the loan compared to the period of notice.

k)  When transferring a capital asset, the capital value is determined based on the annual value of the income and the capitalisation factors at the time of transfer (capitalised value) if an enjoyment of use, interest or income is involved. See Order no. 996 of 8 January 2000 on determining the value of the enjoyment of use, interest or income when calculating inheritance and capital transfer tax.

 

The market price used in assessing the value of Items a-d is the all-trade price at 5 pm. All-trade prices are calculated by the OMX Nordic Exchange, Copenhagen, as a weighted average of all the transactions which are included in the all-trade transactions at the time mentioned.

 

Commencement of tax liability (Section 15(3), Item 7 of PAL)

If a previously tax-free asset becomes liable to taxation, the asset is considered to be acquired at the market value at the time of commencement of the tax liability.

 

If an asset becomes liable to taxation under PAL on 1 April 2008, the acquisition sum for the asset liable to PAL taxation must be determined based on the market value at the time of commencement of tax liability, i.e. 1 April 2008. The first year of taxation where the asset is liable to taxation under PAL is from 1 April to 31 December 2008.

 

The basis of PAL taxation is determined by the bank and pension provider.

 

Cessation of tax liability (Section 15(3), Item 8 of PAL)

If an asset previously liable to taxation becomes tax-free, the gains and losses are determined at the end of the last year of taxation in which the tax liability exists as if the asset was disposed of at the market value at the time when the tax liability ceased.

 

If an asset ceases to be liable to PAL taxation on 31 March 2008, the consideration for the asset liable to PAL taxation must be determined based on the market value at the time of cessation of the tax liability, i.e. 31 March 2008. The last year of taxation in which the asset is taxed under PAL is from 1 January to 31 March 2008.

 

The basis of PAL taxation is determined by the bank and pension provider.