Guidelines for repayment of illegally imposed tax

The Danish Customs and Tax Administration (SKAT) has just published new guidelines for the repayment of illegally imposed tax. The guidelines are a result of a successful tax case brought before the Court of Justice of the European Union by Danfoss with assistance from Plesner.

In a case about tax on lubricating oil that Plesner conducted on behalf of Danfoss the Court of Justice of the European Union and the Danish Western High Court found that the company could claim the repayment of mineral oil tax that the Danish Ministry of Taxation had imposed in conflict with EU law. This was the result despite the fact that it was not Danfoss but the company's suppliers that had paid the tax in question to the Danish Customs and Tax Administration (SKAT). Now two and a half years after the High Court passed its judgment the principles of the judgment have resulted in guidelines from the Danish Customs and Tax Administration (SKAT) on the repayment of illegally imposed tax.

For a number of years Danfoss had paid mineral oil tax on lubricating oil that the company purchased from its suppliers. When it was found that the tax was in conflict with EU law and when the Act was repealed, the company raised a claim against the Danish Ministry of Taxation. The Ministry dismissed the claim by stating that the company had not paid the tax to the Danish Customs and Tax Administration (SKAT) and as a consequence the company was not entitled to raise a claim against the Ministry. On the contrary, the Danish Ministry of Taxation found that only the suppliers were entitled to raise a claim.

However, the Court of Justice of the European Union and the Danish Western High Court found in favour of Danfoss and ruled that the company could raise a claim against the Ministry. The High Court held that Danish practice relating to the repayment of illegally imposed tax to parties at the subsequent stage does not meet the requirement under EU law that the right of recovery must be efficient and not be disproportionately difficult. The High Court referred to the fact that under Danish law it is uncertain whether parties at the subsequent stage may raise a claim directly against the party liable to pay tax. The High Court then held that the Danish repayment rules are consequently to apply in such a way that companies at the second and third stages may directly raise a repayment claim against the Danish Ministry of Taxation.

As a result of the judgment the Danish Customs and Tax Administration (SKAT) has now issued guidelines in which the general repayment principles of illegally imposed tax are laid down.

With the guidelines the Danish Customs and Tax Administration (SKAT) accepts its obligation to repay the tax to the purchaser of the supply and not just to the company that paid the tax to the Danish Customs and Tax Administration (SKAT). In the opinion of the Danish Customs and Tax Administration (SKAT), it is a condition that it is impossible to obtain repayment from the supplier and that the purchaser has not included the tax in its prices. If that is the case, the purchaser has not suffered a loss because of the illegally imposed tax.

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