Cross-border tax arbitrage using inbound hybrid financial instruments curbed in Denmark by unilateral reclassification of debt into equity

This article analyses a new provision in Danish tax law - Sec. 2B of the Corporation Tax Act - aimed at curbing cross-border tax arbitrage through the use of hybrid financial instruments. The effect of the provision is to reclassify debt between group companies as equity, and thus interest into dividends. The article examines the requirements for applying Sec. 2B and provides a comprehensive analysis of the consequences of doing so.