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Supreme Court of Denmark

No deduction of loss on shares 

Case no. 118/2012

Judgment delivered on 14 February 2014.

HSH Nordbank AG, Copenhagen Branch
The Danish Ministry of Taxation

The Danish branch of a German bank not entitled to deduct a loss on a large shareholding

In 2003, two German banks merged to form HSH Nordbank AG. In that connection, the Danish branch of one of the banks was discontinued, and its assets were transferred to a new Danish branch established as part of the merger – HSH Nordbank AG, Copenhagen Branch. These assets included a large shareholding. The transfer of these shares, so-called "equity investments", generated a loss relative to the original purchase price of approx. DKK 128m.

The issue in dispute in this case was whether the bank was entitled to deduct this loss from its taxable income, which the Danish tax authorities did not accept.

During the case, the parties agreed that, under the then applicable Danish rules, permanent establishments of foreign companies in Denmark – as the Danish branch in this case – were not liable to pay tax on the profit and loss on equity investments, regardless of the period of ownership. For companies domiciled in Denmark, the same only applied if the sale was effected after a period of ownership of three years. In this case, the transfer took place after a period of ownership of approx. five years.

The Supreme Court held that the bank had not been discriminated against, as a company domiciled in Denmark would not have been entitled to deduct losses on equity investments when sold after a period of ownership of more than three years either. In addition, under Denmark's international law obligations pursuant to the Double Taxation Treaty with Germany, it was not required to allow the bank to deduct the loss.

The Supreme Court, thus, reached the same conclusion as the High Court.


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