Change of practice: full deduction of VAT for holding companies

Up till now there has only been a limited right to deduct VAT on advisor costs paid in connection with the acquisition of shares in subsidiaries. The Danish Customs and Tax Administration (SKAT) is now changing its practice on the basis of a new EU judgment with the result that it will be possible to fully deduct such costs. The new practice applies to any future advisor costs and also to advisor costs paid in the past ten years. Plesner can assist you with the request for the repayment of VAT that has not previously been deducted.

EU judgment results in Danish change of practice

As a consequence of a new judgment passed by the ECJ the Danish Customs and Tax Administration (SKAT) has issued guidelines for holding companies' right to deduct VAT. The Danish Customs and Tax Administration (SKAT) extends the right to deduct VAT on advisor costs in connection with the acquisition of shares in subsidiaries with the result that in a large number of instances it will now be possible to fully deduct VAT on advisor costs paid.

In order to fully deduct VAT the holding company's intention must be to "interfere with the administration of the subsidiary". In other words, the holding company's object must solely be to provide administrative services subject to VAT to the subsidiaries, which would be the case if for instance the holding company has a legal department providing advice to the subsidiaries in return for payment.

If at the same time a holding company provides services subject to VAT and services exempt from VAT (for example costs relating to advice and provision of loans) to a subsidiary or if the holding company only provides services to some of its subsidiaries, the holding company will have a right to partly deduct the VAT on the advisor costs.

According to the guidelines, the Danish Customs and Tax Administration (SKAT) will also change the practice applying to the right to deduct other indirect costs, including for example accounting, telephone and office expenses. Corresponding rules on a right to fully or partly deduct VAT on such costs apply, which is a definite extension of the existing right to deduct VAT which only made it possible to deduct such costs on the basis of an estimate.

Repayment request before 16 May 2016

As a consequence of the change of practice it may be possible for holding companies that so far have been subject to a limited right to deduct VAT to have their VAT liability reopened and receive repayment of the VAT that was not previously deducted.

It is possible to request a reopening of a case going back ten years calculated from the date of the judgment passed by the ECJ, namely 16 July 2015, which means that it will be possible to reopen a case involving tax periods that had commenced but had not expired on 16 July 2005.

Reopening a case requires that the request is submitted to the Danish Customs and Tax Administration (SKAT) six months at the latest after the publication of the guidelines on 16 November 2015, namely 16 May 2016.

The repayment of VAT is conditional on it being possible to prove the claim by relevant accounting material and documents. If a company is no longer in possession of the relevant accounting material because of the five-year time limit applying to keeping such material, documentation can be provided in another manner.

Please contact Plesner if you would like to receive assistance with the calculation of any claims and documentation in such regard as well as with the submission of the repayment request before the expiry of the deadline of six months.

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