Contents

This section describes how the basis of taxation for operation and disposal of real property is determined.

 

The section covers

  • Real property
  • Determining the profit or loss from tje operation of real property (Section 15(2) of PAL)
  • Gains and losses on real property (Section 15(3), Item 1 of PAL)
  • The property is acquired or disposed of during the year of taxation (Section 15(3), Items 2 and 3 of PAL)
  • Subsidy under the Danish Subsidised Private Youth Housing Act (Lov om støttede private ungdomsboliger) (Section 15(6) of PAL)

 

Real property

In Danish tax legislation, the concept of real property is based on case law.

 

In the Danish Assessment of Real Property Act (Lov om vurdering af landets faste ejendomme), the concept of property is in line with the Danish property law tradition. This means that a precondition of private property right is attached to the concept. When assessing whether a property constitutes independent real property, SKAT will normally base its opinion on the registration of the property in the land register.

 

Real property is the land and the building(s) and planting on the land. Real property comprises

  • fencing, bridges, paving on areas and roads
  • water and sewer lines
  • streams, lakes, ponds and pools
  • natural occurrences which normally follow the property right to property, e.g. limestone, clay, stone and gravel

►Buildings comprise buildings and building components if they are regarded as brick and cast structures on and in the ground, provided that such structures are intended to permanently remain on the site. ◄

 

See sections A.4.1 and A.4.2. in Assessment Guide (Vurderingsvejledning).

 

See also the binding advance notice of 15 August 2000. In a specific case, the Assessment Council found that the investment made by a pension fund in industrial forestry abroad via a limited liability company was to be considered as a direct investment in real property. The Assessment Council was of the opinion that forestry fell under the concept of ‘other business activities'. As for the individual assets of the activities, profit/loss and gains/losses in respect of these must be determined under the special rules that apply thereto. The Assessment Council also found that there was no basis for deviating from the definition of the concept of real property set out in the tax legislation.

 

Determining the profit or loss from the operation of real property (Section 15(2) of PAL)

Profit or loss from the operation of real property is, as a general rule, determined in accordance with the general tax rules. See Sections 4-6 of the Danish State Tax Act (Statsskatteloven (SL)) on the general tax rules.

 

Sections 4-6 of SL

The concept of income defined in the Danish State Tax Act is based on a net income principle.

 

Under Sections 4 and 6 of SL, the taxable income is the difference between

  • the taxable gross income, cf. Section 4 of SL, and
  • the deductible gross expenditure paid to obtain the income, cf. Section 6 of SL

 

Section 4 of SL contains the general main rule for calculating gross income. Under Section 4 of SL, all income, both non-recurring income and recurring income, must be included in the income statement. It is thus irrelevant whether the income is

  • the result of positive efforts to obtain an income, e.g. as a employee or as a self-employed businessman
  • acquired unexpectedly, e.g. winnings or a gift.

The provision does not contain an exhaustive list of examples. The tax liability comprises all types of acquisition of economic value. It is thus irrelevant whether the income is in the form of money or is an asset of economic value.

Section 5 of SL lists examples of income which are exceptions to Section 4 of SL and not liable to taxation even though this appears from Section 4 of SL. In addition, the remaining part of the tax legislation contains exceptions to Section 4 of SL. Below, some of the more special types of income are described.

See section A.A.1.1, Sections 4, 5, and 6 of SL, the concept of income in Assessment Guide.

 

As an exception to the general tax rules, the rules on depreciation and amortisation for tax purposes in respect of buildings and installations cannot be applied.

 

When determining the profit or loss from the operation of the property, the person liable to PAL taxation cannot deduct mortgage interest, including bond losses. Interest expenditure, including mortgage interest, can, however, be deducted from the basis of taxation under Section 9(1) of PAL.

 

Gains and losses on real property (Section 15(3), Item 1 of PAL)

Gains or losses on real property is determined according to the inventory principle as the difference between the market value at the end of the year of taxation and the market value at the beginning of the year of taxation. See section C.2.2, Determining the basis of taxation according to the inventory principle.

 

The property is acquired or disposed of during the year of taxation (Section 15(3), Items 2 and 3 of PAL)

If the property is acquired during the year of taxation, the acquisition sum of the property must be converted into cash value. Gains or losses must be determined as the difference between the value at the end of the year and the acquisition sum converted into cash value.

 

If the property is disposed of during the year of taxation, the consideration for the property must be converted into cash value. Gains or losses must be determined as the difference between consideration converted into cash value and the value at the beginning of the year.

 

See also

For a more detailed description of the determination principles for the acquisition/disposal of real property during the year of taxation as well as the conversion of the acquisition sum and consideration into cash value, see also

  • C.2.2, Determining the basis of taxation according to the inventory principle and
  • C.2.3.6, Trading costs.

 

Subsidy under the Danish Subsidised Private Youth Housing Act (Lov om støttede private ungdomsboliger) (Section 15(6) of PAL)

►Subsidies under the Danish Subsidised Private Youth Housing Act (Act no. 1089 of 17 December 2002) must be deducted from the value of the property at the beginning of the year of taxation. If the property was acquired during the year of taxation, the subsidies must be deducted from the acquisition sum of the property converted into cash value.◄