Supreme Court has said NO: Not all wage expenses can be deducted in Danish companies

Companies cannot deduct all its wage expenses for the staff who work in acquisition and mergers during work hours. In Denmark, the Supreme Court recently (30-06-2017) announced a fundamental judgement hindering Danish companies from deducting wage expenses not related to the prime operations of the company.

For example, acquiring other companies during work hours is considered unrelated to the operation of the business they are engaged in. Therefore, the company cannot deduct wages of people having taken part in such actions. Expenses incurred in connection with a new business startup is a one-time expense and therefore a form of setup expense – not a recurring expense – according to the Supreme Court’s ruling.

The Danish business community is worried

The ruling caused worry and uncertainty in the Danish business community already in 2016, as the Supreme Court agreed with The Danish Tax Authority that wage expenses can only be deducted if employees have handled the ongoing operation of the company. In the specific cases, it was largely about Arbejdernes Landsbank and Lån & Spar having acquired other banks, and in doing so could not deduct wages from such activities.

Every company will now be facing quite a problematic administration because of this ruling since they will now be forced to keep track of every employee’s detailed function.

The current situation is that The Danish Tax Authority may deny wage expense deductions they do not consider related to the operation of the company. The future is uncertain and depends on whether The Tax Minister of Denmark introduces the announced draft legislation. The new bill will  be before the Danish parliament when it opens in October 2017.

Deductions on all wage expenses in the UK

If you have a business in England, you can deduct all your company’s wage expenses. There is no such tax discrimination of employees so you can deduct all wage expenses if you have an English company, possibly as a subsidiary of your existing Danish company or as an English company with a Danish branch. There are many English companies owned by Danes having partial operations in Denmark.

In addition to this, an English company whose primary function is product development, IT products and similar developing services will receive a grant in the form of 150 percent tax deduction on their costs.

Large export and cooperation in The Commonwealth

The people of the UK chose to leave the EU in 2016. This has naturally created a lot of uncertainty and frustration about what the future will hold. In addition to this, there have been many political and journalistic opinions about where this will leave England in a few years once the country is no longer part of the EU. Many have a sense of where it’ll lead but no one truly knows the repercussions of this referendum result.

However, one should keep in mind that England has the Commonwealth of Nations, which has existed since the mid-1900s when Britain gave greater autonomy to the countries of their empire as a result of the London Declaration in 1949. There are 52 countries in the Commonwealth and they all share the same values of democracy, the right of free speech, human rights, and legislation. Her Majesty Queen Elizabeth is also the monarch in 16 of the member states. The Commonwealth membership is voluntary, but it requires that members adhere to certain standards.

England has always had a large export and cooperation with the countries of the Commonwealth. Having approximately 2.3 billion people in about 20 percent of the world’s countries, a large market is undergoing rapid change. A lot of young people in the Commonwealth countries have also been educated in England, so continuous contact and trade is to be expected in the future.
Some of the countries have been excluded due to legislative non-compliance, but some are now back in. Hong Kong chose not to join after China took control in 1997, but they have chosen to continue partial cooperation in terms of legislation and education.

England – large and secure trading partner despite Brexit

Although Brexit will create turbulence for the next few years, England will certainly be a great, reliable trading partner in the future as no major changes are expected to happen concerning the establishment of companies or associated laws. There has even been talk about reducing corporate tax which would provide owners of an English company with an obvious advantage.

The business structure and regulations in England in terms of doing business will likely only experience a marginal adjustment. England will still be the country in which new business expansion must be “tested” first, before heading to the United States – and the same goes for US companies. US companies are inclined to set up in the UK before establishing business within the EU, in large part due to the English language.

Seize the opportunities with an English company

Nothing suggests that the UK government wants to prevent foreigners from owning and operating English companies as this would prevent the country’s own international trade. England will remain a country on equal terms with other countries both outside and within the EU, where you can freely set up companies as an individual or as a corporation.

So why not seize the opportunity when you can easily set up your business in England and even deduct all your expenses associated with the development of your current or future business?

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