Denmark vs Water Utility Companies, November 2018, Danish Supreme Court, Case No SKM2018.627.HR and SKM2018.635.HR

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These two triel cases concerned the calculation of the basis for tax depreciation (value of assets) in a number of Danish Water utility companies which had been established in the years 2006 – 2010 in connection with a public separation of water supply and wastewater utility activities.

The valuation of the assets would form the basis for the water utility companies’ tax depreciation. The transfer was controlled and subject to Danish arm’s length provisions.

The Supreme Court found that the calculation method (DCF) used by the Danish Tax Agency did not provide a suitable basis for calculating the tax value of the transferred assets. The Court stated that for water supply and wastewater treatment it is true that the companies are legaly obligated to provide these facilities and that the governmental regulation of the activity – the “rest in itself” principle – means that no income can be earned on the activities. However, the decisive factor is the value of these assets for the water utility companies – not the fact that no income could be earned on the activity.

The Supreme Court found that a method by which the regulatory value is calculated as an average of the written down value and the acquisition value (the so-called POLKA value) was a reasonable approach to value of the assets under the arm’s length provisions.

The Supreme Court did not have the basis to determine the POLKA value and the cases was returned to the Tax Agency for consideration.

The district court had come to another conclusion.

Case 27/2018

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Water supply I


Case 28/2018

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Water supply II

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