A tax plan is a strategy where an individual or a business organises and optimises their financial decisions to reduce tax payments within the framework of the law.

For individuals, optimisation typically takes place by planning income distribution so that payment of top tax is avoided or limited.

It also includes using deduction options for capital income, using the thresholds for pension schemes and handling share income so that losses can be used and gains are realised strategically within the lower-rate threshold, where the low rate applies.

The effect is greatest in years with large one-off income, sale of assets or special deductions.

Examples include sale of real estate that is not covered by the exemption for tax-free gains on property, realisation of a larger shareholding, cessation of a business or exit from the business tax scheme, or receipt of an extraordinary bonus or severance payment.

In such situations, timing and arranging income and deductions can reduce the total tax payment significantly.

A voluntary payment of residual tax can reduce or completely avoid the interest and percentage surcharges that would otherwise be imposed by the Danish Tax Agency.

Planned saving during the year makes it possible to have the funds ready when the tax falls due, creating financial overview and certainty that the tax can be paid on time without liquidity problems.

Tax planning is legal as long as it takes place within the framework of the applicable tax legislation.

You may legally organise your finances and use the rules to reduce the tax burden, as long as you do not exceed the limits of the law.

Tax planning: A legal strategy where the possibilities in tax legislation are consciously used to reduce tax payments, for example by using deductions, timing of income and expenses, investing in tax-favoured schemes or choosing a company structure that provides tax advantages.

Tax evasion: Illegal behaviour where correct information is deliberately not provided to the tax authorities, income is hidden or false information is used to reduce tax, for example by failing to report income, claiming incorrect deductions or transferring funds to hidden accounts abroad.

A central part of tax planning for businesses is the choice of company structure, for example establishing a holding company to obtain tax-exempt dividends and gains on the sale of subsidiaries.

It may also be advantageous to place certain activities in companies with favourable depreciation rules or low tax rates.

Timing of income and expenses is also important, so investments, purchases and depreciation fall in a financial year where they provide the greatest tax advantage, including planning when profits are distributed to optimise tax on dividends.

Businesses also use tax planning to make use of deductions, credits and reliefs, such as research and development deductions, environmental investments and depreciation options, and for international businesses, transfer pricing and the use of double taxation treaties play an important role.

Aggressive tax planning typically involves advanced financial structures, cross-border transfers between countries, use of companies in low-tax countries, artificial splitting of income or expenses and exploitation of weaknesses in double taxation treaties.

Although the methods are often technically legal, the tax authorities may regard them as abuse of the rules and challenge them through audits and claims for payment of tax and interest.

The Danish Tax Agency can set aside tax planning if it assesses that the plan constitutes abuse of the tax legislation or goes beyond the purpose of the law.

This applies especially in cases of aggressive tax planning, where complex structures or loopholes are used that are formally legal, but which primarily aim to avoid tax without real economic justification.