As from 1 July 2023, the Danish Tax Agency can impose interest on corrections made to VAT returns where the corrections result in a VAT liability. The interest, which is expected to be at a rate of around 8.4% per annum, will be imposed retroactively from the date the original tax payment was due, thus giving rise to a substantial financial burden. Taxpayers that need to revise prior VAT returns should act quickly to avoid potential interest charges, particularly if the corrections will result in additional VAT liability.
Corrections made to VAT returns after 1 July will be subject to interest regardless of whether the correction is made at the taxpayer’s initiative or as a result of an audit by the Danish Tax Agency. Interest will accrue if the correction cannot be covered by the balance in the Danish VAT return in the relevant tax period.
Since the interest will be charged on the Danish tax account, taxpayers must make sure that the payment process for the VAT takes the balance on their Danish tax account into consideration and not just the VAT due for the period.
This tightening of the rules regarding the accrual of interest on VAT adjustments is not entirely surprising. In recent years, the Danish Tax Agency has significantly increased its focus on VAT (and duties), intensified their control efforts and enhanced scrutiny of cross-border trade to ensure that businesses handle such transactions correctly.
Taxpayers need to understand the new interest rules and their potential impact. Timely and accurate corrections to prior VAT returns are essential to avoid potential interest charges. Staying current with the Danish Tax Agency's guidelines and promptly addressing any necessary adjustments will help taxpayers successfully navigate these regulatory changes.
Kasper Harvey Hansen
Louise Eide Hartung
BDO in Denmark
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