The majority of Danish tax disputes are settled within the administrative complaints system before the Danish National Tax Tribunal, which is an administrative appeals body that hears complaints in direct and indirect tax matters (see Section III, infra).
2012 saw an increasing number of Tribunal complaints, in comparison with an almost 50 per cent reduction over previous years; this rise is most likely a result of intensified tax control within several areas, including money transfers to tax havens, loss-making companies, group financing and other transfer pricing issues, and several issues regarding private equity funds.
In 2011 the Tribunal decided 3,997 matters with an average processing time of approximately seven months.
The courts also continue to play an important role in the resolution of Danish tax disputes; 299 matters were brought before them in 2011.
With the exception that natural persons can complain to a body of regional appeals boards before appealing to the Tribunal, the Danish procedural framework for administrative complaints and court hearings is generally the same for both natural persons and legal entities such as companies.
This chapter focuses exclusively on company tax and the options available for companies to dispute a tax claim.
II COMMENCING DISPUTES
A Danish tax dispute is usually initiated by an appeal against an assessment made by SKAT (the Danish tax authority).
Such assessment will normally be based on SKAT’s review of tax returns filed by the company in question, but may also result from SKAT’s scrutiny of the company or certain issues involving the company. SKAT operates a selection system by applying certain criteria in SKAT’s IT systems in order to identify, among others, significant variations and outliers as compared with such criteria.
If SKAT maintains that there is a basis for an adjustment following a dialogue with the company in question, and after having reviewed documentation and explanations provided by the company, SKAT will send out a draft assessment outlining its intention to change the taxable income reported by the company. The draft assessment contains the reasons behind the intended change and a request for comments from the company prior to SKAT’s decision on the final assessment.
Throughout the procedure, and prior to the final assessment, there is a dialogue between SKAT and the company with a view to ensuring the company’s right of contradiction and hearing.
SKAT must send out draft assessments no later than 1 May in the fourth year following expiry of the income year in question. The same deadline applies to taxpayers who request having their tax assessments resumed in order to make adjustments. In transfer pricing matters, the deadline is extended to 1 May in the sixth year following expiry of the income year in question.
Statement of facts
If SKAT maintains the intended change to the tax return, it prepares a statement of facts along with a proposed decision for the final assessment, which is then submitted to the company for comments prior to SKAT issuing the final decision. Comments must normally be submitted within 15 days of the date of the draft decision, but it is quite normal to agree a later deadline with SKAT.
SKAT must prepare a final assessment no later than 1 August in the fourth year following expiry of the income year in question. In transfer pricing matters, the deadline is extended until 1 August in the sixth year following expiry of the income year in question.
Statutes of limitation
The deadlines for (draft) assessments are supplemented by the general Danish statutes of limitation. These provisions do not regard the specific assessment, but rather the tax claim deriving from the assessment, and they provide the ultimate limit as to when a tax claim may be presented.
According to the Danish Limitation Act, the main rule is that claims are time-barred three years after the due date of the claim. The due date of company tax is 1 November in the calendar year following the income year in question.
Tax claims in transfer pricing matters are time-barred after five years. While the three and five-year time bars may be suspended, an absolute limitation deadline of 10 years applies, which cannot be suspended.
When SKAT has sent out a draft assessment before the expiry of the statutes of limitation with the intention of changing the taxable income, an additional period of one year from the date of the notification of the decision is granted.
If the tax claim has been deferred, the limitation deadline is postponed until the expiry of the deferral.
SKAT’s decision on the final assessment can be appealed to the Danish National Tax Tribunal.
III THE COURTS AND TRIBUNALS
The following provides an outline of the procedures before the Danish National Tax Tribunal and Danish courts.
|Danish National Tax Tribunal – procedure overview
|Written submissions from taxpayer and SKAT
|Meeting (or meetings) with Tribunal case officer
|Case may be submitted for an expert opinion (optional)
|Hearing before Tribunal
|Six to 18 months (if more than six months elapses it is possible to skip from the Tribunal to the courts)
|Courts – procedure overview
|Written submissions by taxpayer’s counsel and government’s counsel
|Upon request the court may decide to obtain an expert opinion
|City courts and high courts: 18 to 24 months. Supreme Court: 24 to 36 months
ii The Danish National Tax Tribunal
The Danish National Tax Tribunal is the supreme administrative appeals authority for cases involving taxation, VAT, duties, customs duty, collection of public debts and property valuation. The Tribunal is not a court; there is no extensive oral hearing before the Tribunal, and a hearing will only be arranged upon the request of the taxpayer. In addition, there is no examination of witnesses.
While the Tribunal is part of the Danish Ministry of Taxation, it is independent of the Ministry.
The Tribunal consists of a president, three chairs and 34 members. The Minister of Taxation appoints 19 tribunal members, while 11 members are elected by the Danish parliament. At least 11 tribunal members must meet the conditions for being judges and will normally be employed by either of the two regional high courts, or one of the city courts. The other members widely represent Danish society. The Tribunal consists of seven offices in which lawyers prepare cases.
The Tribunal has the authority to decide complaints against decisions from SKAT, and is the only administrative appeals body in cases concerning assessments of direct and indirect taxes for companies.
Complaints must be filed and received at the Tribunal within three months from the receipt of the decision from SKAT, and a complaints fee of 800 kroner must be paid. The fee is refunded if the Tribunal or the courts (fully or predominantly) find in favour of the taxpayer.
Complaints must be in writing, and must state the reasons and present documentation supporting these reasons. It is accepted that a preliminary complaint may be filed to meet the deadline and then supplemented subsequently by an elaborate complaint.
Meeting with the case officer
The taxpayer can request a meeting with the case officer during the case preparation to discuss the matter, and clarify points of law and fact. The case officer normally prepares minutes of the meeting for the taxpayer’s comments.
At any time during the case preparation, but prior to the decision of the Tribunal, a company can request a hearing before the Tribunal. The Tribunal may reject the request for a hearing if it finds it unnecessary due to the matter being already fully defined.
In cases with a hearing, the Tribunal prepares a draft decision that is submitted to SKAT for comments. SKAT normally has 14 days to submit its comments. The recommendation of the Tribunal and the comments from SKAT are then presented to the taxpayer for comments. If the taxpayer maintains the request for a hearing, the hearing will be scheduled.
Witnesses cannot be summoned to a hearing, although in some cases representatives of the company or a third party can be allowed or requested to make statements at the hearing.
The Tribunal may give an oral decision after the hearing, but normally sends a subsequent decision in writing.
Going directly to the courts
If the Tribunal does not settle the case within six months, the taxpayer can go directly to the courts. Currently, the average processing time for a Tribunal matter is seven months (for complex matters, it is significantly more). However, the skipping rule is rarely used in practice.
During the proceedings before the Tribunal, a taxpayer may request, or the Tribunal may suggest, that an expert opinion be obtained. An expert opinion can relate only to the facts, not the law of a matter (e.g., a valuation issue). Following submissions by the parties on the choice of expert and the questions to be asked, an expert is appointed by the city court, and the Tribunal proceedings are put on hold pending the opinion. When the expert opinion proceedings are finalised, the matter returns to the Tribunal.
The decision of the Tribunal can be appealed to the competent city court within three months of the date of the decision.
In 2011, the Tribunal upheld SKAT’s decisions regarding income tax and VAT in 49 per cent of cases tried by the Tribunal. In 31.6 per cent of the cases, the taxable income was reduced.
iii The Danish courts
The Danish constitutional court system consists of 24 city courts, two high courts and the Supreme Court.
All tax cases must be brought before the relevant city court for a first instance court hearing. It is a condition that the case has first been settled or rejected by the Tribunal, or that the Tribunal has not met the six-month deadline referred to above. If the case is principal, it can be referred to the high court for a first instance hearing upon request. Cases may be considered principal if the decision of the court will affect a large number of taxpayers or the case regards the interpretation of laws, including EU law.
Generally, the Danish court system is a two-tier system, meaning that if the city court hears the matter as the first instance court, the city court judgment may be appealed to the high court (within a deadline of four weeks), but not to the Supreme Court without the third instance permission from the Appeals Permission Board. Such third instance hearing permission is rarely granted in tax matters. Similarly, if the high court hears the matter as the first instance court, the high court judgment may be appealed to the Supreme Court (within a deadline of eight weeks).
The appeal begins with the filing of a writ with the relevant city court. Thereafter, the statement of defence, reply, rejoinder and possibly additional pleadings are exchanged between the parties, after which the case is set down for hearing.
If an expert opinion is requested during court proceedings, the request must be put forward no later than at the preliminary hearing stage. The procedure is similar to that of the Tribunal regarding appointment of the expert, preparation of questions to the expert, the expert opinion report and questions to the expert.
Statistics show that the court of first instance finds in favour of the taxpayer in 15 to 20 per cent of matters. Before the Supreme Court, the percentage is 10.
Statistics from the Supreme Court show that there was an increase of appeal cases to the Supreme Court in 2011.
iv The European Court of Justice
As part of proceedings before the Tribunal and the courts, it is possible to request a preliminary reference of the case to the European Court of Justice, and there is an increasing tendency for parties to request preliminary rulings.
v Complaints against SKAT
It is possible to complain against SKAT’s administrative procedures, including the review time, insufficient guidance or the conduct of a SKAT employee.
Such objection must be sent to SKAT itself. Once the objection is received, the director of the region that the objection regards will process the case. If the taxpayer is not satisfied with the outcome of this, a second and final review of the case can be requested. The case will then be processed by the citizen ambassador, who is independent from the Danish Ministry of Taxation.
The citizen ambassador has the authority to declare his or her criticism of the administrative procedure, but cannot change the substantive decision that arises from the objected proceedings.
vi The Ombudsman
The Danish Ombudsman has the authority to handle complaints regarding the public administration (especially the handling of cases) and complaints regarding the tax procedure.
If a taxpayer wants to make a complaint about a decision or the administrative procedure, such complaint must be filed within a year of the taxpayer’s receipt of the decision. All other possible avenues of complaint must be exercised before the Ombudsman handles the case.
The Ombudsman examines whether there were errors or omissions, and furthermore if there was a violation of current law (for instance, unreasonable decisions or failure to meet the requirements of the administrative procedure (often the review time)).
The Ombudsman can declare its criticism and request the relevant body to reopen the case.
This article was first published in The Tax Disputes and Litigation Review, 1st edition, by Law Business Research Ltd.