Denmark: Expanded territory for tax liability for taxpayers within continental shelf/exclusive economic zone

Enacted 1 June 2023 and effective 1 July 2023

Taxpayers within continental shelf/exclusive economic zone

A bill to expand the limited tax liability for individuals and companies within the Danish continental shelf/Exclusive Economic Zone (EEZ) was enacted on 1 June 2023 and will become effective on 1 July 2023.

The purpose of the new rules is to guarantee that renewable energy facilities are covered by the tax jurisdiction.

The scope of the rules expands the Danish tax jurisdiction to provide legal basis for taxation of foreign individuals and companies that perform activities between the 12 Nautical Miles Zone and the EEZ.

Companies will be subject to Danish limited tax liability if the conditions for establishing a permanent establishment are met, requiring a Danish tax filing obligation. Similarly, foreign individuals can be subject to limited Danish tax liability if they perform activities for a foreign entity establishing a Danish permanent establishment due to activities conducted in the EEZ.

The new rules cover activities directly linked to artificial islands, installations, and facilities located in the EEZ, including maintenance and demolition of facilities.

Indirect taxes and excise duties are not considered to be within the extent of the new rules. 

KPMG observation

Guidance regarding the new rules is very limited. For example, it is not defined in the enacted rules when an activity is to be considered “directly linked” to an establishment, operation and use of artificial islands, installations and facilities, especially regarding services performed by subcontractors.

Further, it is not entirely clear based on the wording of some the tax treaties entered into by Denmark, seen in the context of the new rules, whether the new rules could, in some cases, imply a risk of tax controversy.

Read a June 2023 report prepared by the KPMG member firm in Denmark



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