Denmark: Increase in VAT audits of nonresident digital services providers
A recent uptick in VAT audits initiated by Danish Tax Agency aimed at nonresident digital services providers
Increase in VAT audits of nonresident digital services providers
Tax professionals in Denmark have observed a recent uptick in value added tax (VAT) audits initiated by the Danish Tax Agency (DTA) aimed at nonresident digital services providers.
As per the EU VAT provisions implemented by Denmark, nonresident providers offering digital services to final consumers (B2C) in Denmark must register for, collect, and remit VAT. Digital services are defined as services delivered over the internet or through an electronic network, which are highly automated and require minimal human intervention. Examples of electronically supplied services include, but are not limited to, software downloads, digital media (e.g., music, movies, e-books), online gaming, website hosting, online advertising, and cloud-based services.
The DTA is actively auditing non-Danish digital service providers, including U.S.-based companies, who are not registered in Denmark (locally or via the EU-wide one-stop-shop mechanism). To identify non-compliant taxpayers, the DTA gathers information from credit card providers, banks, and other financial institutions about online purchases made by Danish B2C consumers using their personal credit cards. This data enables the DTA to determine VAT liability in Denmark based on the provider's estimated net revenue.
Although the statute of limitations for VAT in Denmark is generally three years, the DTA may claim VAT due for the last 10 years if it deems the provider acted in gross negligence. To mitigate the risk of penalties, businesses need to take a conservative approach and voluntarily disclose VAT due during the last 10 years. If a voluntary disclosure is not made, the DTA may impose additional penalties on the VAT due. Interest will apply for all historical periods, whether disclosures were prompted or unprompted. The current applicable rate is 0.7% compounding monthly, resulting in 8.4% for corrections going back one year and nearly 30% for corrections three years back. This rate is expected to increase at the beginning of 2024.
Lastly, due to increased information exchange among EU tax authorities in the VAT realm, there is a heightened risk that the identity of non-compliant taxpayers identified by the DTA is shared with other EU tax authorities, and that the DTA receives such information from them. Digital service providers need, therefore, to adopt an EU-wide strategy when addressing inquiries from the DTA or any other EU tax authority.
For more information, contact a KPMG tax professional:
Philippe Stephanny | philippestephanny@kpmg.com
Chinedu Nwachukwu | chinedunwachukwu@kpmg.com
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