A case in which Bachmann/Partners Law Firm assisted a client, the Danish Tax Agency proposed that the client should be liable for VAT, labor market contributions, and A-tax. The issue arose because the Danish Tax Agency believed that the company for which the client was a director—and which was not VAT-registered—had conducted VAT-liable business. After extensive documentation, the Danish Tax Agency’s assessment could be refuted, and the agency subsequently withdrew the proposed liability.
The Danish Collection Act contains a provision stating that anyone who, through their participation in the management of a company, intentionally or through gross negligence contributes to or causes the company’s operations to commence or continue without being registered for one or more registration obligations under tax and duties legislation, is personally, unlimitedly, and jointly liable for the taxes and duties arising from the unregistered business. In other words—if a company is not VAT-registered but nevertheless conducts VAT-liable business, the management is liable for any VAT assessed by the Danish Tax Agency.
Bachmann/Partners Law Firm recently assisted a client, A, who was faced with a proposed decision from the Danish Tax Agency suggesting that A, as director of the company X, would be liable for VAT, labor market contributions, and A-tax amounting to approximately DKK 3.6 million.
The situation was that A owned X, which was a holding company that was not VAT-registered because no VAT-liable business was conducted within the company. A was also the director of X. A controlled two other companies, Y and Z, both of which conducted VAT-liable business and were duly VAT-registered. Neither Y nor Z had a bank account, but X did.
Since neither Y nor Z had a bank account, the bank account held by X was used for Y and Z. This meant that when Y and Z issued invoices including VAT, the payment details listed X’s bank account. On the expense side, payments such as employee salaries for Y and Z were also made from X’s bank account.
During an audit of X, the Danish Tax Agency observed that X’s bank statements showed incoming payments, with the reference field indicating that these were payments for invoices. This, of course, conflicted with the fact that X was not VAT-registered. On this basis, A received a proposed decision in which the Danish Tax Agency suggested that he be held personally liable for VAT, labor market contributions (AM-bidrag), and income tax (A-skat), as calculated by the agency, totaling approximately DKK 3.6 million.
Since the Danish Tax Agency did not have information during the audit that the VAT-liable turnover took place in Y and Z, it was necessary to undertake extensive documentation to demonstrate that the VAT-liable business was conducted in Y and Z. A substantial number of invoices and other documents from Y and Z were presented, proving that the VAT-liable turnover did not occur in X, but rather in Y and Z, which had also reported and paid VAT, labor market contributions (AM-bidrag), and income tax (A-skat). All payments to X’s bank account could be reconciled with invoices and other documentation issued by Y and Z.
Bachmann/Partners Advokatpartnerselskab assists with all tax and duties matters. Inquiries can be directed to Christian Bachmann at +45 30 30 45 21 / chb@bachmann-partners.dk or Peter Hansen at +45 40 32 35 35 / pha@bachmann-partners.dk.
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