Denmark Tax Tribunal Denies Artificial Intra-Group Loan: Key Lessons.

Introduction

In the case of National Tax Tribunal (Denmark), Case No. SKM2025.590.LSR, decided in October 2025, the Danish tax authority challenged the tax deductibility of interest on a promissory note issued in connection with the acquisition of a 50 % shareholding of a foreign company held by Holding A/S (and related purchaser entities). 

The controversy involves the restructuring of share-transfer and financing steps: The purchaser companies (three related entities) acquired 50% of the shares in a foreign company and financed the purchase price through a promissory note of DKK 100 million (with accrued interest of approximately DKK 6.5 million) issued by the three companies to settle the purchase by Holding A/S. Subsequently, the shares were resold to H8 ApS, ultimately owned by the same group of persons who owned Holding A/S and the purchaser companies. 

The dispute concerned whether the loan-based financing arrangement qualified as a bona fide commercial debt, or whether it should be ignored / re-characterised for tax purposes owing to its intra-group nature, contemporaneous share transfer steps and overlapping ownership.

Denmark Tax Tribunal Denies Artificial Intra-Group Loan: Key Lessons.

The Tribunal’s reasoning rested on several pivotal findings:

Overlapping ownership and lack of independent financial interest: The Tribunal emphasised that because the parties involved shared ownership, “the transactions could only be carried out because … did not have conflicting financial interests” and therefore lacked the hallmark of an arm’s-length transaction. 

Unrealistic assumption of debt risk: The buyer companies did not have the financial capacity to assume the substantial debt obligation (DKK 100 million plus interest) such that it constituted a real financial risk as would feature in independent commercial borrowing. For example, one purchaser, H1 A/S, lacked third-party security or guarantee for the debt. Moreover, the promissory note’s due date (initially 17 January 2017) was postponed via two addenda (the latest to 1 January 2024   i.e., over 10 years later). 

Tax deduction objective rather than commercial transaction: The Tribunal held that the true motivation was to allocate interest-deductible payments within the group and capture tax losses in the purchasing companies, rather than reflecting an independent commercial borrowing. Recognition of the promissory note would amount to “a clearly arbitrary allocation of taxable income in the companies involved” for the 2014 income year. 

On that basis, the Tribunal upheld the tax authority’s assessment which increased Holding A/S’s taxable income by DKK 6 462 734 for the 2014 year, by refusing recognition of the promissory note interest deduction. 

Analytical Commentary

From a doctrinal viewpoint, this resolution underscores the confluence of transfer-pricing, financial-transaction and general anti-avoidance doctrine. While the case is not described as a classical transfer-pricing arm’s-length issue per se, the Tribunal applied substance-over-form reasoning the debt instrument was treated as lacking bona fide commercial characteristics and was therefore re-characterised.

In practice, the decision should alert practitioners to the following operational insights:

• When intra-group financing supports a share acquisition and is followed by a further intra-group resale, the risk of re-characterisation is heightened, especially where the parties share ownership and there is no independent financial interest or genuine third-party borrowing dynamic.

• The fact-pattern emphasizes the need to demonstrate that a borrowing entity (i) had the capacity to assume debt, (ii) accepted genuine commercial risk, and (iii) acted at arm’s-length in its structuring including realistic repayment terms, security, and independent covenants.

• The extended maturity of the note (over 10 years), lack of independent guarantees, and overlapping debtor/owner relationships evidenced the Tribunal’s view that the arrangement was contrived. For structuring cross-border acquisitions financed by intra-group debt, more rigorous documentation is warranted to support the arm’s-length nature and financial capacity.

• For tax advisory practice, clients should be warned that interest deductions on intra-group loans may face challenge under a “non-commercial nature” or “arbitrary allocation” line of reasoning even absent explicit transfer-pricing claims particularly where the borrowing supports internal group structuring rather than genuine external investment.

Strategic Insight

For multinational groups and tax-advisory practice, this precedent supports adopting a conservative approach when designing intra-group acquisition financing: ensure that documentation clearly evidences the commercial rationale of the debt, the borrower’s standalone capacity and risk profile, realistic covenant/repayment terms and independent security where appropriate.

From a compliance perspective, companies should pre-emptively assess whether their intra-group funding arrangements might be characterized as non-commercial in a local jurisdiction (as here in Denmark). Structuring teams should factor into the acquisition timeline the potential that tax authorities may re-characterise instruments and deny deductions, and accordingly evaluate the net tax benefit in structuring decisions.

In conclusion, for clients, the decision emphasizes that acquisition financing via intra-group debt cannot be treated as a tax deductible given automatically substance must mirror form, and cross-border intra-group share and finance chains require enhanced scrutiny.

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