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Supreme Court of Denmark

Taxation of compensation 

Case no. 94/2010
Judgment 1. February 2012

The Danish Ministry of Taxation

Taxation of compensation provided after termination of cohabitation between unmarried cohabitees

A and B had lived together since the summer of 1993 without marrying. When the parties terminated their relationship, B announced that he had instructed his bank to transfer DKK 6 million to A's account. The first point in dispute in the case was whether the 6 million should be fully or partly regarded as tax-free compensation.

The Supreme Court noted that, according to its case law, cf. inter alia UfR 1985, page 607/2, when a cohabitation relationship lasting several years is terminated, an amount, the size of which is determined based on an estimate considering the duration of the cohabitation and the parties' financial situation etc., may be awarded to a party who has materially contributed to ensuring that the other party was able to acquire or maintain a considerable fortune.

The Supreme Court was not satisfied that A's claim for compensation against B was justified. According to the notification from A and B to the tax authorities, the transferred amount of DKK 6 million was regarded as a gift. The question was then whether the gift was covered by s. 22(1)(d) of the Danish Act on the Taxation of Estates of Deceased Persons and Gifts (the Inheritance Tax Act) and should, thus, not be included in A's taxable income, cf. s. 5(1)(b) of the Danish Act on Taxation of Income and Property.

The Supreme Court found that A had not received the gift at a time when she and B shared their residence as required in s. 22(1)(d) of the Inheritance Tax Act. Consequently, the gift was not covered by s. 5(1)(b) of the Act on Taxation of Income and Property, but had to be included in A's taxable income, cf. s. 4(c) of that Act.

Article 14 of the European Human Rights Convention, cf. Article 8 or Article 1 of Protocol No. 1, does not preclude a different economic treatment of unmarried cohabitees and spouses when the relationship is terminated, including for tax purposes.

The High Court had reached the same conclusion.

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