Denmark: Legislative proposals regarding interest surcharges for tax corrections, including for VAT

The Ministry of Taxation submitted a bill that would introduce interest surcharges for tax corrections, including for ​​value added tax (VAT).

The interest surcharge measure is proposed to have an effective date of 15 June 2022, but the Minister of Taxation would be authorized to determine a later effective date for certain measures under the bill (for example, possibly in situations for tax corrections submitted after the date of the legislation’s enactment but before the effective date for a specific provision at issue).

The interest surcharge provision would relate to all corrections—regardless whether initiated by the taxpayer or by the Danish tax authority and regardless whether the corrections relate to tax periods before the legislation’s effective date.

With specific regard to VAT corrections, an interest surcharge of approximately 30% would apply to corrections relating to the oldest period (that is, 36 months).

The bill includes details about how the proposal would interact with the partial VAT deduction percentage for taxpayers with mixed activities. A goal would be that interest surcharges would not be owed for a possible situation when the final VAT deduction percentage is lower than the percentage used by the taxpayer. Corrections that are not due to changes in the deduction percentage would be subject to the proposed rules on interest surcharges. This applies, for example, with regard to corrections that are related to the reclassification of costs (for example, from directly attributable costs to those that are identified as common costs) as well as established reverse-charge obligations. 

Taxpayers need to consider making corrections (in particular, corrections if the taxpayer is already under audit or involved in discussions with the Danish tax authority) before the proposed effective date of 15 June 2022.

Based on a technical implementation of the bill, it appears that in most cases when a taxpayer’s tax liability is increased and a tax correction is imposed, an interest surcharge would be imposed if the tax assessment is made after the legislation’s effective date. If the disputed tax period is more than eight years earlier, the amount of the interest surcharge itself could exceed the amount of the disputed tax. 

The Danish tax authority currently can make corrections within the standard 36-month period if the tax base for a specific month is incorrect. This applies, for example, when:

• The taxpayer deducted a cost for which the documentation was not yet presented or when the VAT has been incorrectly charged by the supplier.
• There is a lack of (timely) reporting of EU exports as "EU sales without VAT.”
• The documentation requirement for EU sales is not (or was not) in place at the time of declaration.
• The taxpayer incorrectly assessed a specific sale as being VAT-exempt.

Read a May 2022 report (Danish) prepared by the KPMG member firm in Denmark