Transfer with tax succession

Når en virksomhed skifter hænder, enten ved salg eller som led i et generationsskifte, opstår der ofte spørgsmål om de skattemæssige konsekvenser af overdragelsen. En mulighed, der kan medvirke til at minimere den skattemæssige byrde for både overdrager og erhverver, er reglerne om overdragelse med skattemæssig succession. Men hvad betyder skattemæssig succession egentlig, hvornår kan reglerne anvendes, og hvordan kan reglerne bruges ved et generationsskifte? Det giver vi et overblik over herunder.

What is tax succession?

Tax succession means that the acquirer of a business succeeds to (enters into) the transferor's tax position in relation to the transferred business. A transfer with tax succession therefore does not trigger any transfer tax at the time of the transfer itself.

The recipient of the business, on the other hand, must - for tax purposes - be considered to have acquired the business for the same price, at the same time and with the same intention as the transferor of the business itself acquired the business for.

This means that the transferor is not taxed on any profit at the time the business is transferred. Instead, the recipient is taxed when they subsequently dispose of the business.

This means that the transfer is not tax-free - instead, the tax payment is postponed to the later time when the acquirer hands over the business. In other words, the time of transfer and the time of taxation are separated from each other.

Benefits and pitfalls of tax succession

The deferral of the tax payment is in principle unlimited in time, as the acquirer also has the option of transferring the business with tax succession if the conditions for this are otherwise met at this later time.

The rules on tax succession can thus ease the immediate tax burden on the transfer of a business, which often plays a key role in succession planning.

Since it is not possible to succeed in a loss, it is a condition for applying the rules on tax succession that there is a profit at the transfer that the transferor can succeed in.

A transfer with tax succession is often a complex process that requires careful planning to ensure that the transfer can actually take place with tax succession.

At CLEMENS, we have extensive experience in planning and executing business transfers with tax succession. Contact us here for an assessment of whether your business can be transferred with tax succession.

Who can use the tax succession rules?

The rules on tax succession can only be used for transfers to a specific group of persons, which are exhaustively specified in the legislation.

The rules on transfer with tax succession can thus be applied in particular when transferring to the immediate family (but not an older generation than the transferor himself), i.e. when the transferor transfers to his family:

• Children, adoptees and stepchildren
• Grandchildren
• Siblings
• Siblings' children
• Siblings' grandchildren
• Spouse (so-called forced succession)
• A cohabiting partner who has had joint residence with the transferor for the last two years before the transfer

Finally, there is also a special option to transfer a business with tax succession to one or more of the company's close employees. However, it is a condition for this that the employee has been employed in the company for a number of hours corresponding to full-time employment for a total of 3 years within the last 5 years before the transfer.

In all cases, it is generally a condition that the person to whom the transfer is made is fully taxable in Denmark.

The limited group of persons to whom tax succession can be transferred means that the rules on tax succession are particularly relevant in the case of a full or partial generational transfer of a business.

What can be transferred through tax succession?

The tax succession rules can be used to transfer both personally run businesses and businesses in corporate form. However, in the case of a company, it is a condition that the company does not predominantly consist of passive capital investment (the so-called "money tank rule").

In simple terms, this means that the company must not derive more than half of its income from - or have more than half of its assets invested in - real estate, cash, securities or similar (so-called money tank assets).

In practice, it is often the "money tank rule" that has given rise to considerations about whether the conditions for applying the rules on tax succession are met.

Real estate can generally only be transferred with tax succession if the property is actively used in the operation of a business, e.g. as an agricultural or domicile property.

Som reglerne er i dag, anses en udlejningsejendom derimod normalt som passiv kapitalanbringelse, hvilket betyder, at en sådan ejendom ikke kan overdrages med skattemæssig succession. Det gælder uanset, om der til ejendommen er knyttet en professionel ejendomsadministration, der varetager driften. Der forventes dog at være nye regler på vej herom, hvilket du kan læse mere om i vores artikel: “Nye forbedrede generationsskiftemuligheder tæt på at blive en realitet

Special for the transfer of a business in the form of a company

In order to transfer a business operated in corporate form with tax succession, the following conditions - in addition to the above conditions - must also be met:

• At least 1% of the share capital of the transferring company must be transferred
• There must be no transfer of shares issued by an investment company covered by sections 19b or 19c of the Danish Capital Gains Tax Act (share-based or bond-based investment companies)

Tax succession and generational change

Tax succession rules can be a significant financial and strategic consideration when planning a business succession.

For example, a generational transfer with tax succession provides the opportunity to improve liquidity for the transferor (the older generation), as the transfer does not trigger tax payments for the transferor. It allows the transferor to use the net proceeds from the transfer for other purposes, such as retirement, investment or debt settlement.

A transfer with tax succession can also help to release liquidity in connection with the transfer, which in relation to a generational change can ease the financial burden on the acquirer (the next generation) and the business being transferred.

The rules on tax succession can thus be used as an effective tool that can help ensure flexibility in the planning of a generational transfer of a business, so that the transferred business also remains financially sustainable after the completion of the generational transfer.

The possibility of transferring with tax succession can thus be seen as a support for family-owned businesses, as the rules can help ensure that the ownership and operation of the business remains in the family.

Get started with expert advice from CLEMENS

When planning a succession, it is important to decide early in the process whether the transfer should be with or without tax succession, as this affects the valuation and is crucial for the next generation and the company's finances in the time after the transfer.

At CLEMENS, we have in-depth experience with all aspects of a generational change, including transfer with tax succession. We can therefore guide you safely through the entire process, and we offer customized guidance tailored to your and your company's specific needs.

Are you thinking about a generational change or a transfer with tax succession?