Duties in the financial sector

VAT and payroll tax play important parts in the financial sector. The limited right to deduct input VAT and the liability to pay payroll tax contribute to heavy expenditure in the sector. This is why the Danish Customs and Tax Administration (SKAT) has also been focusing on this area and has instituted several test cases concerning VAT and payroll tax.  

Plesner conducts legal proceedings about VAT and payroll tax in the financial sector before the Danish courts on a regular basis. So far, such cases have resulted in the Danish State having had to repay billions of Danish kroner relating to unlawfully collected duties to the financial undertakings.

VAT - the ATP case

One of the most discussed cases is the ATP case where the Court of Justice of the European Union (ECJ) set aside the Danish authorities' practice and upheld ATP PensionService's contention that the services it provides to PensionDanmark are exempt from VAT as services relating to transactions concerning payments and transfers or as the management of an investment fund. ATP PensionService and the Danish Ministry of Taxation settled the matter and SKAT had to repay a triple-digit million amount to ATP PensionService. On this background DKK 1.3bn has been earmarked in the Danish Finance Bill for 2016 for repayment of unlawfully collected VAT to other undertakings. Read a comprehensive presentation of the case The Danish Ministry of Taxation and the ECJ may end up in a new VAT dispute.

Due to the judgment and the settlement SKAT has had to relax its practice in respect of VAT exemption for payment transactions and the management of unit trusts even if SKAT, in our opinion, interprets the ECJ's judgment somewhat restrictively.

In the guidelines subsequently issued in respect of the ATP case the Danish Ministry of Taxation does accept that a pension fund or another pension provider can be deemed to be an "investment fund". However, SKAT denies that the ECJ has set aside SKAT's interpretation of the concept of management, finding that the services provided by ATP PensionService may be included in the existing practice in respect of which services that may be deemed to constitute the "management of unit trusts". Furthermore, SKAT recognises that the ECJ has set aside SKAT's practice with respect to "transactions concerning payments and transfers " but SKAT restricts its new practice to services corresponding to the services provided by ATP PensionService to PensionDanmark. In doing so, it is our opinion that SKAT fails to recognise the principle expressed by the ECJ's judgment on this point. 

Plesner has regularly received requests from the financial sector and providers to financial undertakings about the scope of the judgment since it was passed by the ECJ. The settlement and the guidelines issued by SKAT mean that the implementation of the ECJ's judgment can be initiated in respect of the rest of the financial sector and its providers. We expect that SKAT's restrictive interpretation of the judgment will give rise to additional cases about the correct understanding of the VAT exemptions.

See also EU tax litigation

Payroll tax

Plesner is also conducting a number of leading cases about payroll tax and the question of how financial undertakings are to distribute their payroll in the calculation of payroll tax (lønsumsafgift) when the employees are involved in both activities that are subject to VAT and activities that are VAT exempt (liable to payroll tax). The legislation stipulates that payroll tax is to be paid on the part of an undertaking's payroll that is used for the activities that are liable to payroll tax (VAT exempt). 

SKAT claims in the cases that the financial undertakings cannot apply the percentage for deduction of VAT as an allocation method and has instead ordered the financial undertakings to make distributions on the basis of a discretionary assessment made by SKAT. 

Plesner represents the banks involved and we have requested that the courts, firstly, consider whether the financial undertakings are entitled to use the percentage for deduction of VAT as an allocation method. Secondly, the courts have been requested to consider the criteria for SKAT to carry out and enforce an estimate deviating from the discretionary assessment made by the financial undertaking itself.

Most recent Spar Nord Bank A/S was successful before the Danish Western High Court in that the bank's discretionary allocation of payroll costs on taxable and non-taxable activities based on the breakdown of turnover under section 38 of the Danish VAT Act could not be set aside as the Danish Costums and Tax Administration had not proved that the Administration's estimate was more correct than the bank's. 

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