Tax on foreign exchange gain

Case no. 175/2019
Judgment delivered on 21 June 2021

A
vs.
The Danish Ministry of Taxation

Following the forced sale of A's shares in the limited partnership company K/S Uxbridge in 2010, he was released from his share of a loan denominated in GBP. As a result, he made a foreign exchange gain of DKK 1,085,622. The parties agreed that the gain was taxable under Section 23 of the Danish Capital Gains Tax Act. The case concerned the issue of whether A had been taxed in contravention of Article 63 of the Treaty on the Functioning of the European Union (TFEU) on the free movement of capital.

This was a foreign exchange gain which is only possible on foreign currency debt. The fact that, according to the general rules of Danish tax law, the value of the deduction for the exchange loss on foreign currency debt may be lower than the tax charged on a similar foreign exchange gain could not lead to the conclusion that A had been discriminated against in contravention of Article 63 TEUF. The difference between the value of the deduction and the amount of taxation does not change the fact that the taxpayer in case of an exchange loss is still placed in a more favourable position than if the debt was denominated in Danish kroner because that does generally not carry a right to a deduction for exchange losses at all. It had to be considered that it could not be foreseen at the time when A obtained the loan in 2003 whether it would be beneficial to take out the loan in Danish kroner or in a foreign currency. In addition, there was no basis for holding that this amounted to a restriction within the meaning of Article 63 of the TFEU.

The Supreme Court thus ruled that Article 63 TFEU did not preclude taxation of the exchange gain that A made when he was released from his share of the loan.

The Supreme Court, thus, reached the same conclusion as the High Court.