VAT audits on companies selling goods or services to Danish private customers who are not registered for VAT
Following several successful value added tax (VAT) audits, the Danish Tax Agency (DTA) seeks to continue its practice of obtaining payment information from Danish financial intermediaries to initiate VAT audits on companies selling goods or services to Danish private customers who are not registered for VAT in Denmark. Additionally, the DTA plans to apply this data to other types of audits, including those related to other tax areas outside VAT, such as combating the “black economy.”
This payment information is obtained based on a license granted by the Danish National Tax Board to collect payment data from various financial institutions enabling digital payments, such as banks. The license is typically limited to the collection of payment data for one or two income years; in this case, it has requested the license for the income year of 2023. This data is then compiled and processed by the DTA for audit purposes. This is now the fifth time that the DTA has been granted such a license.
From this dataset, the DTA can identify the different companies from which Danish customers have purchased goods or services online by using their credit cards to finalize payment. Thus, if the DTA is not provided with data supporting the audited company’s sales activity in Denmark, the DTA will instead rely on this payment data to calculate the potential VAT due.
In enforcing VAT remote seller rules, the primary challenge for foreign tax authorities typically lies in identifying noncompliant remote sellers, given the absence of a global register for these companies. In recent years, tax authorities have employed various measures to overcome this challenge, including leveraging payment information from financial intermediaries. For instance, the EU has implemented a new enforcement tool through Central Electronic System of Payment Information (CESOP) system effective January 1, 2024 (read TaxNewsFlash). Denmark therefore appears at the forefront of this trend as it has not only continued this practice but has also extended it to other types of taxes.
As this trend is expected to become more extensive in the coming years, there are risks associated with this approach for nonresident remote sellers. One such risk is that the data may not always accurately reflect actual sales activity. Consequently, the DTA may calculate VAT exposure based on incorrect sales data. Therefore, it is crucial to assess any discrepancies between the sales data collected by the audited company and the sales data provided by the DTA. Another risk is that Denmark is among the, for now, minority of jurisdictions actively sharing information with other tax authorities regarding any transaction that may be attributable to another jurisdiction. As such, the exposure is not limited to Denmark but extends to other countries with which it shares this information. Read TaxNewsFlash
Finally, with the proliferation of information-reporting requirements for digital platforms, including the OECD’s Model Reporting Rules for Digital Platforms, which have been implemented in the EU under the EU’s Directives on Administrative Cooperation (DAC7), this trend is only expected to increase exponentially. Thus, nonresidents who have yet to regularize their positions should bear in mind that it is not a matter of “if” but “when” tax authorities will come after them.
For more information, contact a KPMG tax professional:
Martin Jørgensen| martin.jorgensen@kpmg.com
Martin Henri Leth With | martin.with@kpmg.com
Philippe Stephanny | philippestephanny@kpmg.com
Chinedu Nwachukwu | chinedunwachukwu@kpmg.com