Contents

►This section describes how non-allocated funds in life insurance companies, insurance companies etc. are taxed under PAL.◄

 

►The section covers◄

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  • Who is covered by the rule? (Section 8(1) of PAL)
  • What are non-allocated funds? (Section 8(2) and (3) of PAL)
  • Determining the basis of taxation (Section 8(4) and (5) of PAL)
  • Exemption for plans not covered by Section 4 (Section 8(6) of PAL)
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Who is covered by the rule? (Section 8(1) of PAL)

►Life insurance companies and insurance companies etc. as mentioned in Section 1(2), Items 10-12 of PAL are taxed on non-allocated funds, i.e.:◄

►a)  Life insurance companies which are liable to taxation under the Danish Corporation Tax Act (Selskabsskatteloven (SEL)), including life insurance companies which perform insurance activities in Denmark through a permanent establishment.◄

►b)  Insurance companies which are domiciled in Denmark or perform insurance activities in Denmark through a permanent establishment provided that such insurance companies have a closed portfolio of life insurance policies from a liquidated life insurance company. ◄

►c)  Administration estates through administrators that administer a closed portfolio of life insurance policies from a liquidated life insurance company as mentioned under items a) and b) which are covered by ◄

    ►
    • Sections 253-258 of the Danish Financial Business Act or
    • similar supervisory arrangement in another country within the European Union or in a country with which the Community has concluded an agreement for the financial area. 
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What are non-allocated funds? (Section 8(2) and (3) of PAL)

►Non-allocated funds mean:◄

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  • Provisions for collective bonus potential
  • Non-allocated special bonus provisions
  • Accumulated value adjustment
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►It is a condition that the funds are not taxed under Section 4(5) of PAL. See section B.3.2.2 Special conditions in relation to claims for a share of non-allocated bonus reserves.◄

 

Specifically for life insurance companies and insurance companies which are domiciled in a country other than Denmark or are domiciled in Greenland or on the Faroe Islands and which perform activities through a permanent establishment in Denmark

►For these life insurance companies and insurance companies, non-allocated funds are all types of provisions etc. made for the benefit of pension plan holders which are not included in the basis of taxation of the pension plan holders under Section 4 of PAL.◄

 

►The company must implement an accounting separation of the insurance-related provisions for insurance policies taken out in Denmark.◄

 

Determining the basis of taxation (Section 8(4) and (5) of PAL)

►The basis of taxation is determined as the difference between ◄

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  • non-allocated funds at the end of the year of taxation and
  • non-allocated funds at the beginning of the year of taxation.
    • ◄

►To the extent that the non-allocated funds determined at the end of the year of taxation have changed due to taxation under Section 8(1) of PAL, such change shall be exempt from taxation in connection with the determination of the basis of taxation.◄

 

►This means that an adjustment must be made for PAL tax paid such that the accounting end-of-year value before PAL tax which is used.◄

 

Change in accumulated risk and cost result

►In the basis of taxation, an exemption can be made in relation to the change in the accumulated risk and cost result in the non-allocated funds during the year of taxation provided that such change has occurred after the transition to taxation under PAL. ◄

 

►The choice is binding for plans liable to PAL taxation, and the choice is made in connection with the transition to taxation under PAL.◄

 

Exemption for plans not covered by Section 4 of PAL (Section 8(6) of PAL)

►When determining the non-allocated funds which are included in the basis of taxation under Section 8(4) of PAL, an exemption is made in relation to non-allocated funds from plans not covered by Section 4 of PAL.◄

 

►This concerns non-allocated funds related to:◄

►1)  Pension plans covered by Sections 53 A and 53 B of PBL ◄

►2)  Policies which are not covered by PBL and which can only be disbursed in the event of the policyholder's illness, disablement or death prior to the agreed time of expiry of the policy provided that the agreed time of expiry is not later than the first policy day after the policyholder having reached the age of 80◄

►3)  Insurance and pension agreements with municipalities concerning their pension obligations vis-à-vis municipal officials ◄

►4)  Child savings plans covered by Section 51 of PBL◄

►5)  Annuities without bonus entitlement taken out before 1 May 1982 ◄

►6)  Pension plans covered by Section 15 D of PBL ◄

►7)  Pension plans covered by Section 53 of PBL ◄

►8)  Pension plans taken out with the company's branch in a country other than Denmark or on the Faroe Islands or in Greenland. It is a condition that the pension plan holder either◄

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    • is not tax liable under Section 1 of the Danish Withholding Tax Act (Kildeskatteloven (KSL)) or
    • is tax liable under Section 1 of KSL, but which, under the provisions set out in a double taxation treaty, is domiciled in a country other than Denmark or is domiciled on the Faroe Islands or in Greenland.
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