July 11, 2022
Denmark publishes draft bill introducing tax liability for activities carried out in Denmark's Exclusive Economic Zone
On 24 June 2022, the Danish Minister of Taxation published a draft bill expanding the scope of tax liability for nonresident companies and individuals engaged in activities outside of Denmark’s sea territory (12 nautical miles) but within Denmark's Exclusive Economic Zone (EEZ). The draft bill will be subject to public consultation until 18 August 2022, after which it will be presented in Parliament.
Currently, Denmark only levies tax on nonresidents activities in the EEZ related to hydrocarbon activities. The draft bill will expand the scope of tax liability to nonresident companies meeting all of the following conditions: (i) activities are carried out in the EEZ; (ii) the activities constitute a permanent establishment; and (iii) the activities relate to “the establishment, operation and use of artificial islands, installations, and facilities.” Examples of such activities include the establishment and operation of renewable hydrogen production, offshore wind farms, artificial energy islands, and activities associated with the storage of CO2. The proposal must be seen in the light of a political agreement to establish an artificial island in the North Sea hosting a wind farm and related production facilities and to establish offshore Carbon Capture and Storage (CCS) facilities. The statutory corporate tax rate is 22%.
A carve-out provision means that activities related to sea cables and pipelines will not trigger tax liability unless the cables or pipelines: (i) continue to Denmark’s sea or land territory; (ii) relate to exploration or extraction of resources in Denmark’s EEZ; or (iii) relates to the operation of artificial islands, installations or facilities in Denmark’s EEZ. Hence, sea cables and pipelines that are only used to transit through the Danish EEZ will remain exempt from Danish taxation.
Nonresident individuals will also be subject to Danish tax liabilities if engaging in the above activities as employees or self-employed.
The bill is proposed to be applicable as of 1 January 2023.
For additional information with respect to this Alert, please contact the following:
Ernst & Young P/S, Copenhagen
Ernst & Young P/S, Aarhus