On 10 December 2024, the National Tax Tribunal ruled that a company which, over a multi-year period, had overall paid too much VAT had not acted with gross negligence for the periods in which it had mistakenly underpaid VAT. The errors committed were due solely to simple negligence, and therefore there was no basis for extraordinary reopening.
The question before the National Tax Tribunal was whether the Danish Tax Agency was entitled to increase the company’s VAT liability for the periods extraordinarily under Section 32(1)(3) of the Tax Administration Act. Specifically, the issue was whether the company had acted with gross negligence in relation to the errors, allowing the Agency to issue notices after more than three years from the filing deadline.
A review of the company’s accounts by the Tax Agency revealed a difference between the VAT owed according to the accounts and the VAT reported. The company had continuously reported and paid VAT based on its ongoing bookkeeping. The company’s auditor had made adjustments in connection with the year-end closing, including adjustments to the VAT liability.
Bachmann/Partners conducted a new review of the VAT liabilities and found that the main cause of the difference was a change in the bookkeeping procedure in 2013, where the payment of VAT for Q4 2012 and the 2012 VAT adjustments were not posted to the VAT account in the ledger. As a result, this VAT continued to appear as a liability even though it had been paid. The review also showed that, overall, the company had overpaid VAT for the period 2012–2017 by DKK 91,395.
Since Section 32(1)(3) of the Tax Administration Act does not grant the tax authorities the right to reduce VAT liability for periods where the company overpaid VAT, the Agency was only entitled to extraordinary reopening for the 2012 and 2014 periods where VAT had been underpaid.
The National Tax Tribunal considered it relevant that the company had continuously reported and paid VAT in amounts not materially different from the bookkeeping records, and that a significant error in VAT owed was later identified in early 2013. The reconciliation prepared by Bachmann/Partners showed that the 2012 adjustments and other corrections had mistakenly been reported and settled in the following quarter. The Tribunal concluded that the company had acted only with simple negligence and further emphasized that it could not be established with certainty that the company was aware of the underpayment in 2012 and 2014 at the time of reporting.
There was therefore no basis for extraordinary reopening.
The decision illustrates that, even if it is not possible to reopen the entire VAT period extraordinarily when intermediate periods have been overreported, the assessment of gross negligence must consider whether, overall, too much VAT has been paid across the relevant periods and whether there were other factors that reasonably should have prompted the company to detect the errors.
For further information or advice regarding the above, please contact Diana Mønniche at dme@bachmann-partners.dk, tel. 20 71 78 62.
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