The owner of a residential property who allows a relative to use the property free of charge must be taxed on an amount corresponding to the objective rental value – that is, an estimated market value for rental. The person who is given access to an asset free of charge must also be taxed on this. Bachmann/Partners Law Firm has conducted and won a case before the National Tax Tribunal, where the question was whether a residential property owned by a sister was being used by the sister’s brother. Such cases are typically evidentiary matters, where there is a strict burden of proof on the taxpayers. This strict burden of proof also applied in the case, where the brother had his registered address at the property.
A sister had allowed her brother to have his registered address at a property that she owned. The property was an older and outdated single-family house, which was not occupied by the sister. The tax authorities took the view that when the brother had his registered address at the property, he must also have lived there, as he was not registered elsewhere. On that basis, the brother was taxed on the alleged use in accordance with the provisions of the Danish State Tax Act. The sister was also taxed under the provisions of the Danish State Tax Act concerning taxation of an objective rental value.
The core issue in the case was whether the brother had used the property for residential purposes. If it could be documented or made probable that the property had not been used for residential purposes by the brother, there would be no basis for taxing either the brother or the sister.
The brother bore the burden of proof that he had not used the property for residential purposes when he had his registered address at the property. During the relevant period, the brother had lived with his then girlfriend. A statement from the former girlfriend was presented in the case, in which she declared that the brother had lived with her, even though he had not had his registered address with her. Information regarding the property’s consumption of water and electricity was also presented. This information showed that the consumption was very low. During the period to which the case related, there had been frost damage to a water pipe in the property. Documentation of this frost damage in the form of an invoice from the plumber who carried out the work was not available in the case, but the plumber stated that he had repaired the damage and that, in his opinion, at the time of the repair the property appeared unfit for residential use.
A taxpayer who invokes the owner-occupied housing rule is subject to quite strict evidentiary requirements that a property has in fact been used for residential purposes. The situation was the reverse in the present appeal case, as the brother was subject to a strict burden of proof that he had not occupied the property. By its very nature, it is more difficult to prove something one has not done than to prove something one has done. In the former situation, taxpayers rarely retain the documentation that is subsequently required by the tax authorities.
By two decisions of 16 September 2021, the National Tax Tribunal ruled in favor of the two siblings, finding that there was no basis for imposing taxation on them. The case was primarily won on the basis of various pieces of evidence that documented and made it probable that the property had not been used for residential purposes by the brother. In such cases, it is always essential to establish a strategy for how the burden of proof is to be met, including which evidence must be obtained to document the circumstances.
Bachmann/Partners Law Firm conducts administrative appeal cases and court proceedings concerning all tax matters. If you would like to learn more about the decision of the National Tax Tribunal of 16 September 2021, you can contact Christian Bachmann at tel. 30 30 45 21 / chb@bachmann-partners.dk or Peter Hansen at tel. 40 32 35 35 / pha@bachmann-partners.dk.
Regardless of your situation, we can help you create the most advantageous solution. We have Denmark’s best
team of lawyers and experts, so you can be confident you are receiving the best advice.
We have offices in Copenhagen, Aarhus, and Aalborg, so you always have access to tax advice near you.
Contact us today
Or fill out the form to learn more about how we can help you or to book a meeting with us.
Then fill out the contact form below. Then a lawyer will contact you within the area you need help with.
