Residual value and its ongoing reassessment
Amendments to the Danish Financial Statements Act, which came into effect for financial years beginning January 1, 2016 or later, included changes for the recognition and measurement of tangible assets.
Residual value
A residual value is the value that the company expects to sell an asset for after use of that asset and after depreciation over the period of use. The residual value must therefore reflect the company's expected selling price of the asset at the end of its use.
Ongoing reassessment of residual values
Previously, the residual value was fixed in connection with the commissioning of tangible fixed assets. In principle, the residual value alone could be corrected downwards, which for example meant that observed price increases were not taken into account.
Going forward, residual values must be regularly reassessed at each account clearance. This is handled as a change in accounting estimates. This means that the company must reassess the residual value of all tangible assets in the first annual report covered by the new rules.
Changes in accounting estimates and correction of errors
An accounting estimate is carried out based on the knowledge available to management on the discretion date. In the event that an error is made in the exercise of discretion, such as for example, if a company applies an incorrect depreciation percent or inadvertently does not insert a residual value of tangible fixed assets, such an error must be corrected according to the rules covering error correction.
Less significant errors (as opposed to fundamental/significant errors, for which account users would have reacted differently if the error had been known earlier) must be treated as changes in accounting estimates, for which comparative figures for previous years are not to be altered.
New auditor’s report
Going along with new international guidelines, auditors' reports as of December 15, 2016 have become significantly longer. Therefore, auditors' reports will now be significantly more detailed regarding the description of the extent of the audit and distribution of responsibilities.
Going forward, the auditor’s report will be turned upside down compared to the earlier report. The auditor's section on the conclusions of the entire audit and the basis for this has been moved up to the first section, since this section is considered the most important for accounting use. In addition, the section on "Reservations" has been removed, so that the sections will now be as follows:
- Conclusion with reservation / Basis for conclusion with reservation
- Adverse conclusion / Basis for adverse conclusion
- Missing conclusion / Basis for missing conclusion
The previous supplementary information must in the future be disclosed as follows:
- Significant uncertainty regarding continued operation (must still be described sufficiently in the financial statements)
- Highlighting of conditions in the financial statements (previously "Supplemental information concerning the understanding of the financial statements")
- Highlighting of matters relating to the audit (previously "Supplemental Information, etc.")
DPO for private companies
If all three of the following criteria are met, a company must appoint a DPO:
- Processing of personal data is the company’s primary activity
- Personal data is processed to a large extent
- The processing activity consists of regular and systematic monitoring of individuals or the processing relates to sensitive information (GDPR article 9), including information on criminal conditions (GDPR article 10).
Based on the above, the Ministry of Justice believes that private companies in most cases do not need to appoint a DPO.
In December 2016, the so-called Article 29 Working Group published its guidelines on DPOs. As an example of a company that processes personal data as its core activity and processes personal data on a large scale, a hospital was mentioned. Thus, a private hospital that handles sensitive information (health information) is expected to appoint a DPO.
The above requirements for a DPO apply to both data controllers and data processors, and while there are no educational requirements for a DPO, such persons should have legal competence and a certain practical experience in the field.
With regard to the issue of dismissal protection for a DPO, it follows from the PDF article 38 that a DPO cannot be "dismissed or penalized by the data controller or the processor for performing its tasks." For that part of the DPO’s work not related to the role of the DPO, the Ministry of Justice declared during the meeting that the DPO will be subject to the ordinary objective protection under the Salaried Employees Act § 2b and thus a DPO as a starting point could be terminated for reasons of ordinary merit.
The complete program and the presentation from the general meeting can be found on the Danish Business Authority's website.
Please also refer to the Data Protection Agency’s website on the Data Protection Regulation.
If you want to know more about what Azets can help you with regarding the General Data Protection Regulation and the upcoming personal data regulation, you are always welcome to contact us.
Azets can help you with everyday legal challenges related to employees and your business. We assist you with anything related to employment and labour law, personal data protection and tax law.
Interest calculation of loan balances between the main shareholder and the company
When calculating their taxable income interested parties should apply prices and conditions for economic transactions in accordance with what could have been achieved if the transactions had taken place between independent parties under the Assessment Act § 2, part 1.
A main shareholder who lends money to his company must therefore receive a return equivalent to what a third party would have received. If the agreed remuneration is below what a third party would have received, there can be a basis for fixing remuneration. The same applies if there are loans to the majority shareholder of the company.
According to standard practice, the interest rate in the above case is calculated as the discount rate + 4%.
For optimal tax planning, you are encouraged to contact your Azets Insight A/S consultant before establishing the loan.
Canteen VAT with new control signal
A company’s cafeteria operation activity is subject to VAT, and therefore outgoing VAT must be calculated on sales, while VAT on purchases can be deducted.
Sales in company cafeterias often occur at prices that are below the purchase price (deficit), and since such transactions are between interested parties, sales VAT should be based on normal market value or cost.
The rules apply to all companies that sell food and beverages to their employees at a loss. The rules also apply to companies who are not ordinarily subject to VAT on their sales to external customers.
External suppliers
Companies that buy food and beverages in ready-to-serve condition from external suppliers, and which do not use their own workforce to prepare the food and beverages, must calculate sales tax on the invoiced price excluding VAT.
If, for instance, a company buys food at a per-plate price of 100 DKK plus VAT (here, the VAT is 25 DKK), but sell food to their employees for 40 DKK per plate, the outgoing sales VAT of 25 DKK must be posted, even though the VAT on the price charged is actually only 8 DKK.
It is permissible for a company to use its own workforce for serving, clearing tables and washing dishes without posting VAT on this work.
Preparation price example:
Assume, for instance, that a company buys raw materials for a per-plate price of 40 DKK plus VAT (VAT is 10 DKK), has its own labour costs of 30 DKK and the costs of running the kitchen are 10 DKK. If the company then sells food to their employees for 30 DKK per plate, the outgoing sales VAT of 20 DKK must be posted, even though the VAT on the price charged is only 6 DKK.
Simplified method example:
If, for instance, a company purchases raw materials for a value of 100 DKK plus VAT (VAT is 25 DKK) and 5% is added, the products now have a value of 105 DKK. The company pays 100 DKK in labour to canteen staff attributed to 75% of the payroll, which corresponds to 75 DKK, then the preparation price of the food is 180 DKK (105 + 75) and the outgoing VAT is 25% of the preparation cost (a total of 45 DKK).
There is a full deduction for meals for guests or staff in their own cafeteria when the consumption takes place in conjunction with meetings, etc. during the company's taxable activities. These activities can be, for example, attendance at meetings with business associates, board meetings, staff meetings with academic content and theme days.
The company will not pay cafeteria VAT on such meals, and may therefore reduce the taxable amount for cafeteria VAT with their value.
Either the company can choose to establish a concrete statement of the feeding of guests/staff, or a fixed reduction of 3% of the VAT base calculated using the simplified scheme to be used for the feeding of guests or staff.
If your company has any problems of the above nature, please contact your consultant at Azets.