New practice concerning section 33 A of the Danish Tax Assessment Act

27 September 2023

In the past, if the objective criteria for relief were met, the rules could be applied, regardless of the nature of the stay abroad. Subsequent to the Eastern High Court’s ruling, a number of binding rulings have been processed by the National Tax Board, and the Danish Tax Agency has issued a draft binding instruction, which will later be integrated into the Danish Legal Guidance.

The change in practice is of decisive importance to persons that work abroad and apply for tax relief in accordance with section 33A of the Danish Tax Assessment Act. The new rulings mean that in order to receive relief as specified in section 33A of the Danish Tax Assessment Act, there must be a business justification for the work carried out abroad. Since the Eastern High Court’s ruling was published earlier this year, several binding rulings in this area have been processed; we expect more to come over the next year or so to provide further clarity in continuation of the Eastern High Court’s ruling.

Business justification is decisive 

In one ruling (SKM2023.286.SR), a questioner that had moved to Portugal was refused relief pursuant to section 33 A of the Danish Tax Assessment Act. The taxpayer had moved to Portugal, and she had entered into an agreement with her Danish employer that she could carry out her work remotely (i.e. from Portugal). The National Tax Board emphasised that the questioner’s stay in Portugal was not due to an expatriation to Portugal, but solely to her own wish to move back to Portugal. Her work abroad had no business justification, as her employer had no business in Portugal. Therefore, she could not apply section 33A of the Danish Tax Assessment Act. The ruling follows the judgment of the Eastern High Court and, in this respect, helps to determine the new practice.

In a second ruling (SKM2023.424.SR), a questioner that had travelled to Vietnam to expand and manage the company’s customer relationships received confirmation that he could obtain relief pursuant to section 33A of the Danish Tax Assessment Act. The National Tax Board emphasised that the stay in Vietnam had a connection with the company’s circumstances and that it was not a situation, where the questioner chose to settle abroad of his own motivation and independent of the company. Thus, the stay had a business justification, and so section 33 A of the Danish Tax Assessment Act could be applied.

Holidays and the like held abroad

In a third ruling (SKM2023.433.SR), the National Tax Board has ruled that holidays and the like held abroad can still be included in the six-month period. In the ruling, a questioner was employed by a foreign group and had a job that could only be carried out in Iraq on a so-called rotation system. The questioner therefore had, under normal circumstances, 28 days of continuous work in Iraq and then 28 days off.

The National Tax Board emphasised that the questioner’s stay in Iraq had a direct connection with the employer’s circumstances, as the work could only be performed in Iraq and the questioner was employed to carry out the work in Iraq. The National Tax Board also emphasised that the questioner’s holiday stay in Spain and Denmark would not interrupt the relief period, but with a maximum of 42 days in Denmark in any six-month period.

It is the opinion of the Danish Tax Agency that the judgment of the Eastern High Court does not change the conditions regarding holidays or the like held abroad. Therefore, holidays and the like held abroad may still be included in the six-month period, when the person otherwise meets the conditions for applying section 33 A of the Danish Tax Assessment Act.

Conclusion

The new practice means that there is now a requirement that working abroad has a business justification. It is also clear, at least in part, from the draft binding instruction issued by the Danish Tax Agency, which situations in the future are barred from the application of section 3 3A of the Danish Tax Assessment Act.

One of the situations is for spouses of expats. This means that it is no longer enough to have agreed with your employer that you work remotely from abroad, while your spouse is expatriated. These will typically lack the business justification for being able to apply section 33 A of the Danish Tax Assessment Act. However, it appears from the binding instruction that if the spouse is employed by the same company as the other spouse being expatriated, an individual assessment must be made as to whether this can also be considered to have a business justification.

In addition, persons residing abroad for private reasons will also not have the necessary business justification for their stay abroad, for example in remote work situations. Therefore, they will going forward not be able to apply section 33 A of the Danish Tax Assessment Act (in the same way as the pilot in the judgment of the Eastern High Court).

It is also important to be aware that holidays and the like held abroad can still be included in the six-month period. This may be relevant for people that use holidays abroad to fulfil the six-month criterion.

We hope that the new binding rulings and the upcoming binding instruction will provide further clarification of current practice going forward. However, we expect further binding rulings to be forthcoming in the coming period in order to be able to define the new practice more precisely. If you have any questions or need further advice, please feel free to contact us.

Facts – Section 33 A of the Danish Tax Assessment Act (not exhaustive)

In order to receive relief on your earned income for working days performed outside Denmark, you must make sure that you meet the conditions in section 33 A of the Danish Tax Assessment Act. 

Conditions:

• Your expatriation must last at least six months.
• You are not allowed to stay in Denmark for more than 42 days in any six-month period (a travel day counts as a full day, regardless of how long you are in Denmark that day).
• Work in Denmark may only be carried out if it is strictly necessary for the stay abroad. The work in Denmark can be meetings, reporting, instructions, etc., but the rules are very strict. Any working day in Denmark is included, when counting the 42 days, and is taxable in Denmark.

The income must still be reported on your Danish tax return, which may affect the tax on other income and the tax value of your deductions. When you apply section 33 A of the Danish Tax Assessment Act, any working day in Denmark is taxable. Working days outside Denmark will be subject to either full or half Danish relief, depending on whether Denmark has the right to taxation on the wage income under a double tax treaty.

See Danish version here.