Interest on VAT, excise duties, and special payroll tax – the wait is over

As previously communicated, the Danish Parliament has passed new legislation on interest on late payment VAT, excise duties, and special payroll tax. The first part of the bill which covers newly registered businesses that make late payments on indirect taxes (regardless of whether they register on time or not) came into effect on June 15 2022. For more details in this respect, please refer to our article from June 23 2022.

The second part of the bill, which covers other situations involving late payments has been pending since then. However, everything is now set for these changes to take effect from July 1 2023.

What does this mean for companies subject to VAT, excise duties and special payroll tax in Denmark? Find the answers below.

Companies recovering VAT based on pro rata

Going forward, VAT adjustments will need to be included in the VAT return covering the sixth month after the end of the financial year. For a company with the calendar year as financial year, this means that adjustments must be made in the VAT return covering June/second quarter/first six months of the year (depending on the reporting period).

This rule applies to financial years beginning after July 1 2023. For companies with the calendar year as the financial year, adjustments resulting from the 2024 final VAT pro rata must be reported in the VAT period covering June 2025.

Audit assessments and voluntary disclosures in favor of the Danish Tax Agency

Currently, additional payable VAT which is voluntarily disclosed and/or is assessed during audits is not subject to interest (unless acting in bad faith).

Going forward, voluntary disclosures in favor of the Danish Tax Agency will be subject to an interest of 0.7% per each month of delay of the payment of additional payable VAT. As such, companies which voluntarily submit a retroactive correctional VAT return in favor of the Danish Tax Agency in terms of payable VAT will be charged interest by default.

The same applies if an audit results in additional payable VAT. In this regard, note that interest applies for the entire duration of the audit up until the payable VAT has been settled. This means that the time it takes for the Danish Tax Agency to conduct the audit is included in this period. Some cases are ongoing for a very long time, which can be costly.

Details still to be confirmed

The new law is silent on companies recovering VAT based on a separate VAT pro rata for each business sector or based on the actual use of goods/services.

This may cover companies which determine their VAT pro rata based on an estimate, because they perform passive capital investments, which fall outside the scope of VAT or passively hold shares in subsidiaries. Such companies are only able to calculate the VAT pro rata when the year is over, since the EU Court of Justice has ruled that this should be calculated based on resources spent, which cannot be done before.

Companies entitled only to limited VAT recovery for certain goods/services, e.g. mobile phones, laptops, etc. not exclusively used for business purposes, must also look back on the year's use in order to make an accurate estimate.

The same applies to public institutions conducting both economic activities and non-economic activities.

So far, the Ministry of Taxation has remained silent on this issue.

We are also waiting to hear about rules on interest waivers.

The Ministry of Taxation has suggested that interest might be waived in situations where corrections are made only for the purpose of reporting transactions in the correct period, while the underlying amounts are the same regardless of when they are reported. Since a lot of companies currently report purchase invoices in the VAT return for the month following the one in which the VAT chargeability of those purchases occurs, due to internal approval procedures, etc., it is expected that the Tax Authorities will have to administer a lot of interest waiver requests, if such situations end up being eligible in this respect.

We suggest you get your affairs in order as soon as possible

If you have anything on your to-do list that could result in a correction of a past filing, or if there is anything which needs to be checked, now is the time to get these matters in order. Interest legislation will not only have effect after July 1 2023, but also retroactively (within the 3-year statute of limitation). As such, it could be costly to wait.

If you are unsure or have questions about the new interest legislation

We are available for discussions on the new interest legislation and the impact it can have on your company. Please do not hesitate to contact us.