Foreign enterprises are liable to Danish tax according to the Hydrocarbon Tax Act:

• if the enterprise earns income in connection with preliminary surveys, exploration, and extraction of hydrocarbons in Denmark, and
• if the enterprise is not liable to tax under the regular Danish tax rules.

Activities covered by the Danish Hydrocarbon Tax Act

The tax liability covers income in connection with preliminary surveys, exploration, and extraction of hydrocarbons, including construction, operation, and maintenance of production facilities and pipelines. The tax liability also covers service functions related to the operation of the installations. Furthermore, income from supply services and transport by ship is covered by the tax liability as well. The tax liability merely concerns income derived from work performed in Denmark or on the Danish continental shelf.

Income from refining and the further transportation of hydrocarbons and from construction and maintenance of facilities and pipelines in this connection, is not covered by the tax liability according to the Hydrocarbon Tax Act.

Tax year

The taxable income must be determined according to the regular Danish tax rules. However, if enterprises are liable to tax according to the Hydrocarbon Tax Act only, enterprises must use the calendar year as accounting year for the income determination.

Assessment authority

The assessment is made by the Danish Tax Agency and the income tax return must be filed within 1 July of the year following the income year. If the activity discontinues during the income year the income tax return must be filed within 1 month after the discontinuance. Companies must pay the ordinary corporation tax of 22% for 2021.

Tax paid on account within 20 March will be raised by an additional percentage (0.1% for 2021. Tax paid on account after 20 March but within 20 November will be reduced by the equivalent percentages.

Tax paid on account during the period 21 November to 1 February the following year will be reduced by another percentage (0.8% for 2021).

If the company chooses not to pay tax on account, the corporation tax, surcharge included, will amount to 22.946% for 2021.

In cases of termination of the tax liability, the deadline for payment of tax on account is 1 month after the date of termination, which corresponds to the deadline for filing a tax return. In these cases no additional percentage will be calculated.

Transfer Pricing

For income years beginning on or after 1 January 2021, parties liable to pay tax that are subject to the transfer pricing documentation obligation must submit their written documentation to the Tax Agency within 60 days of the filing deadline for the tax return. Documentation must be filed to: hydrocarbon-tax@sktst.dk

To get more information on the topic, we refer to: www.skat.dk/transferpricing

The rules as to submitting written documentation and the disclosure obligation for controlled transactions can be found in Part 4 of the Danish Tax Control Act (Skattekontrolloven).

Double taxation conventions

If a foreign enterprise is domiciled in a country with which Denmark has concluded a double taxation convention, the contents of this convention decides whether Denmark has the right of taxation.

In several new conventions, Denmark has the right to tax income earned in connection with preliminary surveys, exploration, and extraction of hydrocarbons in Denmark if the activity performed offshore - in some cases both onshore and offshore - has a duration of more than a certain number of days within a period of 12 months.

In the following examples, Denmark has the right of taxation:

As to enterprises domiciled in the United Kingdom, Denmark has the right to tax offshore work from day 1, whereas Denmark has the right to tax both on- and offshore work from day 1 for enterprises domiciled in Ireland.

Furthermore, Denmark has the right to tax enterprises from many other countries on different conditions.

For further information, please contact us at hydrocarbon-tax@sktst.dk