Recently published rulings from the Danish National Tax Tribunal (Landsskatteretten) confirm that certain employer-paid tax and relocation benefits must be treated as taxable A-income for employees.
This represents a change from prior practice and earlier guidance from the Danish Tax Agency (Skattestyrelsen), where such benefits were generally treated as B-income.
The rulings have practical implications for employers’ payroll reporting, tax withholding obligations, and gross-up calculations. Employers should therefore review their current payroll setup, benefit mapping, and internal processes to ensure correct treatment going forward.
The rulings concern employer-paid tax services and relocation-related benefits provided to employees in Denmark.
Under the new interpretation confirmed by the Danish National Tax Tribunal, certain benefits previously treated as B-income must now be classified as A-income, meaning they are subject to withholding and reporting through payroll.
This change highlights the complexity of correctly handling tax and relocation benefits and underscores the importance of accurate payroll classification and reporting.
Why this matters
The classification of benefits as A-income versus B-income has significant consequences for both employers and employees, including:
● Payroll reporting and withholding obligations
● Timing and settlement of tax payments
● Gross-up calculations for tax-compensated employees
As a result, incorrect treatment may lead to compliance risks, additional tax exposure and increased employer costs.
Planning Opportunities & Considerations
In light of the new rulings, employers should consider taking the following actions:
Assess exposure and impacted populations
Identify which employer-paid tax and relocation benefits fall within scope of the rulings and determine which employees (e.g. assignees, local hires, tax-compensated employees) may be affected.
Review payroll mapping and reporting
Confirm whether impacted benefits are correctly classified in payroll and ensure appropriate tax withholding, reporting, and settlement going forward.
Evaluate gross-up and cost impact
Assess the impact on gross-up arrangements and calculate any incremental employer costs.
Support employee tax compliance
Review individual tax positions, assist with Danish tax returns where required, and help employees understand changes to payslips or tax liabilities.
Update policies and internal processes
Align payroll guidance, internal policies, and procedures with the new rulings to ensure consistent treatment going forward.
Prepare for audit and tax authority dialogue
Ensure appropriate documentation, risk assessments, and readiness to respond to potential questions from the Danish Tax Agency.
For a deeper discussion on the above, please reach out to your Vialto Partners point of contact, or alternatively:
Tenna Bruun-Ringgard
Director
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