Joint taxation guide — loss-offset savings and transfer pricing with Freja

Joint taxation is the mandatory tax consolidation of companies in a group where the parent directly or indirectly controls more than 50% of the votes (Corporate Tax Act §31C). It is mandatory for Danish groups — opting out is not possible. All jointly taxed companies are included in a single consolidated tax calculation via the administration company, which is the highest Danish entity in the group (typically the parent or an intermediate holding company).

The scope is important: joint taxation applies only to Danish entities. Foreign subsidiaries are generally not included in domestic joint taxation unless international joint taxation is elected — an option with far-reaching consequences that is rarely relevant for SME groups. Each company's income is calculated separately and then added to the consolidated taxable income.

In practical terms, joint taxation means that a group company with a loss can offset that loss against another company's profit before calculating the 22% corporate tax. This is the primary tax benefit.

Loss-offset is the core of joint taxation's tax benefits. When a company in the joint taxation group has a tax loss, that loss can be deducted from another company's taxable income before tax is computed. Effectively, the total tax base is reduced by the transferred loss, and the saving is 22% of the transferred amount.

The mechanics: the administration company calculates all companies' taxable income, nets them against each other and computes the consolidated taxable income. Losses are used in the order they arose (FIFO — First In, First Out). A company can absorb a maximum amount of loss equal to its positive income — it is not possible to create a joint taxation loss by transferring more loss than there is profit to absorb.

A practical example: Holding company H owns 100% of operating company A (profit DKK 2,000,000) and start-up subsidiary B (loss DKK 800,000). In a joint taxation scenario, consolidated taxable income is DKK 1,200,000 instead of DKK 2,000,000. Corporate tax falls from DKK 440,000 to DKK 264,000 — a saving of DKK 176,000 from loss-offset alone.

The administration company is responsible for filing the joint tax return and co-ordinating tax payments. Importantly, all companies in the joint taxation group are jointly and severally liable for the group's tax — and for any corrections from the Tax Agency. This means if a subsidiary has mis-reported, the parent (administration company) can be held liable for the shortfall.

In practice, the administration company retains calculated tax from each subsidiary and remits to the Tax Agency collectively. Internal aconto payments from subsidiaries to the administration company are not taxable — they are an internal redistribution of liquidity for tax purposes and have no tax effect beyond ensuring the administration company has liquidity to pay the Tax Agency on time.

Freja in AdvisorGate continuously analyses the joint taxation group's consolidated figures and identifies which companies are expected to contribute losses and which are expected to be profitable. Based on this analysis Freja estimates total group tax and the optimal distribution of aconto payments across the group.

Joint taxation and transfer pricing are inextricably linked — and transfer pricing represents the greatest compliance risk for SME groups. Ligningsloven §2 requires all transactions between group companies to be priced at arm's length: i.e. at the price independent parties would have agreed under comparable circumstances. This applies regardless of whether the transaction involves goods, services, loans, royalties or property.

The most common transfer pricing transactions in SME groups are management fees (the administration company charges subsidiaries for shared overhead and management services), intra-group loans (arm's-length interest based on market rate plus credit spread), and sharing of common resources (IT, HR, administrative staff). All these transactions must be correctly priced and the rationale documented for any Tax Agency audit.

For groups with transactions exceeding DKK 250 million per year, there is also a formal obligation to prepare transfer pricing documentation per the Danish Tax Control Act. Below this threshold there is no formal documentation obligation, but the Tax Agency can still challenge pricing, and the absence of documentation significantly increases the risk of corrections.

Freja analyses joint-taxation-exposed groups on four levels. First, Freja calculates the expected loss-offset based on current financial data from all group companies connected to AdvisorGate. The analysis is updated daily and gives the administration company a running estimate of the total tax saving the joint taxation generates in the current year.

The second level is transfer pricing monitoring. Freja identifies intra-group transactions in the bookkeeping and cross-references them against known market rates and prices. Intra-group loans are particularly monitored: Freja warns if an internal interest rate deviates by more than 1.5 percentage points from the calculated arm's-length rate based on the National Bank's lending rate plus a sector premium. For management fees, Freja monitors whether the charge follows a consistent formula and is well-documented in a management fee agreement.

The third level is the DKK 250M threshold. Freja continuously calculates the total transaction volume in the group and warns when the documentation obligation approaches. The fourth level is Tax Agency escalation: Freja records international transactions with low-tax jurisdictions (typically defined as below 12.5% corporate tax rate) and recommends proactive TP documentation regardless of transaction volume.