Danish Court Clarifies Tax Credit Eligibility for R&D on Digital Platforms

In a significant ruling, the Danish Customs and Tax Administration has provided clarity on the eligibility of tax credits for research and development (R&D) expenses on digital platforms. The National Tax Court Decision No. SKM2024.290.LSR, posted online on May 27, addresses a dispute involving a Danish company and the Tax Agency over claims for R&D expenses.

The case centers on a Danish company that developed a digital platform for image processing and claimed R&D expenses for the income years 2016-2018 under Section 8 of the Equalization Act. The Tax Agency disputed these claims, arguing that certain expenses did not meet the criteria outlined under Section 8 and were therefore not eligible for deduction.

The court's decision provides much-needed clarity for companies engaged in R&D activities on digital platforms. This ruling is expected to have a significant impact on businesses in Denmark, particularly those investing heavily in digital innovation.

Why this matters: These developments in Denmark have significant implications for businesses and regulatory environments globally, particularly in the areas of digital innovation, renewable energy, and international defense cooperation. The outcomes of these decisions may influence policy and investment decisions in other countries, shaping the future of these industries.

In another notable development, the Danish Customs and Tax Administration has clarified tax liability regarding a change of creditor of an interim account between two sister companies. The National Tax Court Decision No. SKM2024.289.LSR, posted online on May 24, addresses a case involving a sole shareholder and director of a Danish holding company.

The court ruled that there was a change of creditor from one company to the sister company for a specified amount in the tax year 2015. This decision provides vital information for businesses with complex corporate structures, helping them find their way through the Danish tax system and ensure compliance with relevant regulations.

Meanwhile, Denmark and Norway have signed a letter of intent to collaborate on the development and acquisition of long-range drones for surveillance in the Arctic and North Atlantic regions. This cooperation aims to enhance situational awareness in these strategic areas.

In January, Denmark secured funding for strengthened surveillance in the Arctic and North Atlantic with long-range drones as part of its defense settlement. Norway followed suit in April, proposing the acquisition of long-range drones in its new long-term defense plan.

Norwegian Minister of Defense Bjørn Arild Gram stated, 'Long-range drones are one of the investments in the Norwegian Defense Pledge to strengthen the ability to monitor the ocean areas in the North. It is a new capability for Norway and the Norwegian Armed Forces. Therefore, we want to cooperate with allies, in which Denmark is a relevant partner.'

In another development, Orsted, a Danish wind farm developer, has settled with the state of New Jersey for $125 million over the cancellation of two offshore wind farms last year. The settlement, which is about one-third of the $300 million initially required, will support investments in wind energy and clean energy programs in New Jersey.

Orsted had initially put up a $100 million guarantee to build one of the projects, Ocean Wind I, by the end of 2025, and was obligated to pay an additional $200 million towards offshore wind industry development in New Jersey. The settlement has drawn criticism from environmental groups but has been hailed by Governor Phil Murphy's administration as a step forward for offshore wind development.

These developments highlight the evolving environment of business and regulatory decisions in Denmark, impacting various sectors from digital innovation to renewable energy and international defense cooperation.

Key Takeaways

• Danish Customs and Tax Administration clarifies tax credits for R&D expenses on digital platforms.
• Tax liability clarified for change of creditor between sister companies in Denmark.
• Denmark and Norway to collaborate on developing long-range drones for Arctic surveillance.
• Orsted settles with New Jersey for $125 million over cancelled offshore wind farms.
• Developments impact digital innovation, renewable energy, and international defense cooperation.