Danish long term savers in sights of fiscal authorities

InvesteringsForeningsRådet, the Federation of Danish Investment Associations, has noted that fiscal authorities in Denmark may be looking to another bumper year of revenue from taxes on pension savings.

Returns from recognised pension savings are taxed via the so-called PAL tax, which is currently applied at a flat rate of 15.3%, the Federation notes.

This makes it significantly lower than taxes on returns from other types of savings, which tend to run at more than 40%.

Since the PAL tax is applied to annual savings, it is now time for Danish investors to consider how much they will need to pay depending on the returns they generated through 2013. The tax rate applies equally to returns generated from different assets, including equities, fixed income, or even cash. An example of the effect the tax can have is that a gain of DKK20,000 would lead to a tax return of some DKK3,060, the Federation calculates.

However, because the tax is applied at a flat rate, the amount of revenue collected by Danish fiscal authorities varies from year to year – depending on the rate of returns generated. In good years the tax revenue rises, in other years it falls. During the financial crisis year 2007 the Danish government collected just DKK5bn (€670m) through the PAL tax, while in 2012 it collected DKK44bn (€5.9bn).

The amount that investors need to pay is generally calculated automatically by their providers, and paid by the January deadline, the Federation notes.


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