The Danish Tax Agency (DTA) has issued updated guidance on VAT refunds, introducing new rules that reshape how both suppliers and customers handle incorrectly charged VAT. This clarification provides businesses with more flexibility when reclaiming VAT, while also tightening the framework to prevent double refunds and ensure fairness in the system.
The update is particularly important for companies dealing with complex supply chains, cross-border transactions, or disputes about VAT treatment. It also gives customers new avenues to recover wrongly charged VAT directly from the tax authority, under specific conditions.
The Core of the Update
The revised guidance allows VAT refunds to be processed in new ways that reduce administrative burden for both suppliers and customers. Key changes include:
- Credit Notes and Corrected Invoices Without Repayment
- Suppliers can now issue a credit note or corrected invoice to adjust VAT without needing to repay the customer directly first.
- This approach streamlines the refund process and avoids unnecessary cash-flow complications between businesses.
- Customer’s Direct Right to Claim from the DTA
- If recovery from the supplier proves difficult, customers may now apply directly to the Danish Tax Agency for a VAT refund.
- The condition is that the VAT must already have been paid to the DTA by the supplier.
- No Direct Claims if Supplier Already Refunded
- Customers cannot claim a refund from the DTA if the supplier has already been reimbursed by the tax authority.
- This prevents situations where both the supplier and customer receive refunds for the same VAT amount.
Restrictions and Conditions
While the new rules are designed to make VAT refunds more accessible, the DTA has set clear boundaries to prevent abuse:
- Inability to Issue a Credit Note: Direct customer claims may apply when the supplier cannot issue a credit note, for example, due to insolvency or business closure.
- Limitation Defence: If the supplier successfully argues that the statutory time limit for issuing a refund has expired, the customer may still apply directly to the DTA.
- Supplier Already Been Refunded: If the DTA has already reimbursed the supplier, customers cannot submit a separate claim.
- Supplier Has Already Issued a Refund: If the supplier has directly refunded the VAT to the customer, no additional claim is possible.
These safeguards are intended to balance fairness to the taxpayer with the integrity of the VAT system.
Special Cases: Employees Wrongly Registered as Taxable Persons
The guidance also addresses a unique scenario: cases where employees were wrongly registered as taxable persons. These situations will be individually assessed by the DTA.
This recognition highlights the complexity of VAT compliance in Denmark, particularly for businesses with mobile workforces or employee arrangements that create unexpected VAT obligations. Each case will be judged on its own merits, ensuring fair treatment while maintaining adherence to VAT law.
Practical Implications for Businesses
For Suppliers
- Easier Adjustments: The ability to issue credit notes without reimbursing customers directly provides greater flexibility in correcting VAT errors.
- Reduced Risk of Disputes: Clearer guidance helps suppliers understand their obligations and avoid conflict with customers over VAT refunds.
- Compliance Vigilance: Suppliers must still ensure they meet all conditions before claiming refunds from the DTA to avoid duplication or non-compliance.
For Customers
- Direct Access to Refunds: The option to claim VAT directly from the DTA is a significant shift, particularly useful in cases where suppliers are unresponsive or insolvent.
- Documentation Requirements: Customers must demonstrate that VAT was indeed paid to the DTA by the supplier to succeed with a claim.
- Awareness of Restrictions: Customers cannot bypass suppliers in cases where refunds have already been processed, preventing double recovery.
Example Scenarios
- Supplier Insolvency
- A Danish business buys services from a supplier that later goes bankrupt. The invoice includes incorrectly charged VAT.
- The supplier cannot issue a credit note.
- Under the new rules, the customer can apply directly to the DTA for a refund.
- Limitation Period Expired
- A supplier refuses to issue a credit note, arguing the legal time limit for adjustments has passed.
- The customer can instead claim the refund directly from the DTA, provided the VAT was already remitted.
- Double Refund Prevention
- A supplier has already received reimbursement from the DTA for the VAT in question.
- In this case, the customer cannot make a second claim.
Why These Changes Matter
The Danish update reflects a broader European trend towards making VAT systems more responsive, transparent, and fair. The rules strike a balance between simplifying refund processes and safeguarding tax revenues from duplication or fraud.
For businesses, this development provides:
- Clarity: Clearer rules reduce uncertainty in VAT disputes.
- Flexibility: Direct claims give customers more control over recovering wrongly charged VAT.
- Risk Management: Suppliers and customers alike must carefully track refund claims to avoid double recovery issues.
Key Takeaways
- The Danish Tax Agency now allows VAT corrections through credit notes or corrected invoices without customer repayment.
- Customers may claim VAT refunds directly from the DTA if supplier recovery is difficult, provided the VAT was already paid.
- Direct claims are not permitted if the supplier has already been refunded.
- Restrictions apply in cases where a credit note cannot be issued, limitation defences are raised, or refunds have already been processed.
- Employees wrongly registered as taxable persons will have their cases assessed individually.
Final Thoughts
Denmark’s updated VAT refund guidance modernises the refund process and provides practical solutions for both suppliers and customers. By allowing direct customer claims in certain situations, the DTA has made the system more adaptable to real-world business challenges, such as supplier insolvency or disputes over time limits.
At the same time, the restrictions safeguard against abuse, ensuring that refunds are fair, efficient, and properly aligned with VAT principles.
For businesses operating in Denmark, this is the time to review refund policies, update compliance procedures, and ensure both suppliers and customers understand their new rights and obligations.
The message is clear: VAT refund procedures in Denmark are becoming more flexible, but compliance discipline remains essential.
