Denmark has launched its largest-ever offshore wind tender

24. april 2024

On 21 April 2024, the Danish Energy Agency announced a new tender for wind farms in the areas of North Sea I, Kattegat, Kriegers Flak II and Hesselø. The wind farms will deliver at least 6GW offshore wind, with a new development being that there is freedom to install as much offshore wind on the sites as possible, which can result in 10GW offshore wind or more.

The tender provides significant opportunities to bid on wind farm projects for both Danish and foreign companies in the entire energy industry, including Power-to-X. 

The wind farms are put up for tender without financial support and through the payment of a fixed annual concession fee to the state over 30 years, which is combined with a state co-ownership of 20%. Consequently, the State of Denmark will become a minority owner in each of the tendered offshore wind farm projects.

Wind farm projects in Denmark may cause a number of tax and VAT challenges and before bidding for a project, it is important to have a complete overview of the relevant tax and VAT consequences. 

In Deloitte Denmark's Tax Department, we have specialists with a special focus on subcontractors to the energy industry, who can assist with discussions and determining the right set-up from the start. The following considerations are relevant in connection with wind farm projects:

Global Business Tax 

• For foreign companies, offshore wind projects may result in a limited tax liability to Denmark. Denmark's right to tax wind projects has recently been extended to 200 nautical miles. 
• For both foreign and Danish companies, it is relevant to consider the tax treatment of the plant investment, the stipulated concession payment, development costs, decommissioning deductions, guarantee obligations, considerations of ownership structure in co-ownership with the State of Denmark and the tax handling of the ongoing operation.

Indirect Tax

• The management of large offshore projects is usually subject to greater complexity, where the type of deliveries (goods or services) is decisive for the VAT handling, as well as who should calculate VAT for the authorities.
• The new interest rules for VAT and excise duties, which entered into force on 1 July 2023, mean that corrections now result in an effective interest payment of 11.35% per year. This has led the Danish Tax Agency to pay more attention to correct handling and reporting, as errors now lead to increased revenue for the Danish Treasury. In wind farm projects where the value of transactions is high, any corrections to VAT handling may have a significant impact, as corrections in the future will result in additional costs, which may affect the business case for the individual project. The correct VAT handling of the individual deliveries in the first place can therefore be decisive for the project's economy and overall profitability.

Employer duties – tax, social security & immigration

• For both foreign and Danish companies, it is relevant to consider taxation and social security for employees working offshore, including withholding obligations.
• If foreign labour is used on projects in Denmark, it should also be analysed whether there is an obligation to carry out RUT registration prior to the commencement of work, including whether there are requirements for a residence and work permit.

Transfer Pricing 

• Transfer pricing set-up for both Danish and foreign companies' activities in Denmark, including value chain analysis and correct remuneration in relation to the individual entity's functions, risk profile and assets.
• Clarification of compliance issues in the transfer pricing area, including any requirements for annual preparation and submission of transfer pricing documentation to the Danish tax authorities.
  

You can read more about the offshore wind tender and entry requirements, etc. on the website of the Danish Ministry of Climate, Energy and Utilities and you can read more about Deloitte and our focus on the energy sector here.