Easing the rules on succession - the money tank rule

Law on when it comes to a money tank

On 20 November 2006, the Danish Parliament passed a law increasing the limit for when a money tank is involved from 50% to 75%.

The Money Tank Rule

Tax legislation allows shares and shares to be transferred by succession under certain conditions. This implies that the sale does not trigger any taxation. In return, the purchaser of the shares enters into the seller's purchase amount for the shares. Therefore, in the case of a subsequent sale, the buyer is taxed on the profit on which the seller would have been taxed if the buyer would not have been included in the seller's acquisition sum for the shares.

The following conditions must be met before generational change can be successful:

• These must be majority shareholders' shares. Common shareholders' shares are shares or shares owned by persons who, together with their immediate family, including children and parents, own at least 25% of the shares in a company or have more than 50% of the votes in the company.
• The individual transfer to each child, etc. must represent at least 15% of the voting value in the company.

The rules on the transfer of shares with succession have been introduced to facilitate generational change of companies operated in a company form. The rules can be applied when transferring to the seller's next of kin, to certain close associates, and when distributing shares from a death estate to the heirs.

The purpose of the rules is to facilitate generational change in real companies run in a corporate form. Therefore, they cannot be used for the sale of companies that have predominantly passive investments. These companies are called money holding companies.

Under the existing rules, succession, etc. could not take place if 50% or more of the company's income or assets relate to the placing of money and the letting of immovable property.

The Money Tank Rule applies when:

• Transfer of shares by succession both in living life and on death.
• Creation of a retirement pension.
• The special capital return scheme for shares.

Under the new rules, the limit has been increased to 75%.

Entry into force

The rules apply to sales of shares that occur on or after January 1, 2007.

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Article No 2007-56. 6 February 2007

Source: Law No 1580 of 20/12 2006

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Disclaimer

‍The above information is for guidance purposes only, and we accept no responsibility for decisions made based on this information without prior individual advice. We accept no responsibility for errors or omissions.

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