Reopening of Tax, VAT and Duty Assessments

The Danish Tax Agency cannot freely change a tax assessment regardless of how old it is.

Statutory rules govern when an adjustment must be notified and when the final decision must be made.

If the ordinary time limit has expired, the Danish Tax Agency must be able to base the adjustment on the rules on extraordinary reopening.

In those cases it is therefore not enough to consider whether the authority is right about the increase itself. It must also be examined whether the authority was entitled to open the tax year again at all.

That question alone may decide the case.

The reopening rules do not apply only to the authorities. You may also request that a previous tax assessment be changed.

This may be relevant where new information has come to light, where an earlier decision rests on an incorrect factual basis, or where a later decision affects your earlier taxation.

A request for reopening should not merely ask the Danish Tax Agency to look at the case again. It must explain why the assessment should be changed and which factual or legal circumstances justify the change.

Documentation is therefore often of considerable importance.

The ordinary time limits for tax assessments are set out in section 26 of the Danish Tax Administration Act.

As a starting point, the Danish Tax Agency must notify an adjustment no later than 1 May in the fourth year after the end of the income year in question, and the final decision must generally be made no later than 1 August of the same year.

There are, however, a number of exceptions. Special time limits apply to controlled transactions between related parties, including arrangements between a company and its principal shareholder.

Special rules also apply to certain individuals with simple financial circumstances.

It is therefore always necessary first to establish which time limit applies to the specific case.

For VAT and duties, the ordinary rules are found in section 31 of the Danish Tax Administration Act.

The starting point here is that the Danish Tax Agency must notify an adjustment no later than three years after the expiry of the reporting deadline.

A business may correspondingly request reopening within the ordinary time limits where information exists that may justify a change.

Although tax on the one hand and VAT and duties on the other are governed by different provisions, many of the underlying questions are the same. When did the time limit begin to run? When did the authority react? And was the decision made in time?

Once the ordinary time limit has expired, the rules on extraordinary reopening become relevant.

For tax, these rules are set out in section 27 of the Danish Tax Administration Act. For VAT and duties, the corresponding rules are found in section 32.

In defined situations, these provisions allow an assessment to be changed even though the ordinary time limit has expired, for instance in the case of certain consequential adjustments, a change of administrative practice or special circumstances.

A significant group of cases concerns situations where the Danish Tax Agency considers that the taxpayer has acted intentionally or with gross negligence. That is often the basis on which the authority seeks to go further back than the ordinary time limits allow.

The fact that a tax assessment is incorrect does not in itself mean that it can be reopened extraordinarily.

If the Danish Tax Agency wishes to rely on intentional conduct or gross negligence, the conditions must be satisfied in the specific case.

It must therefore be examined what the taxpayer knew, which information was provided to the authority, how the error arose, and whether the conduct can genuinely be characterised as grossly negligent.

There is a difference between making a mistake and acting with gross negligence. That distinction may determine whether the older income years can be changed at all.

One of the most important questions in cases on extraordinary reopening is often the point in time at which the authority obtained knowledge of the relevant circumstances.

Once the Danish Tax Agency has sufficient information about the matter justifying an extraordinary adjustment, a separate statutory response deadline begins to run.

This means that the authority cannot necessarily postpone notifying an adjustment while continuing its examination, if it already holds the information needed to react.

In these cases we therefore review the entire timeline. When was the material received? What information did the authority hold at that point? When was the case taken up? And when was the adjustment notified?

It may turn out that the deadline began to run earlier than the authority has assumed.

In a tax case concerning the extraordinary reopening of a previous tax year, an important issue was when the Danish Tax Agency had obtained sufficient knowledge of the circumstances on which the proposed adjustment was based.

It was argued that the statutory response deadline under section 27(2) of the Danish Tax Administration Act had expired.

The case illustrates that the timing of the Danish Tax Agency's knowledge can be just as important as the underlying tax issue.

It is not always sufficient that the Danish Tax Agency issued its proposed decision within the deadline. Rules also govern when the final decision must be made.

In a case concerning deadlines, it is therefore not enough to check the date of the authority's first approach. The entire course of events must be reviewed.

Depending on the circumstances, an exceeded deadline may mean that an otherwise substantively justified increase cannot be carried out.

In certain situations a previous tax assessment may be reopened because special circumstances exist.

The rule may in particular matter to a taxpayer who wishes to have an older assessment changed after the ordinary deadline has expired.

It is an exception. It is therefore not sufficient that the earlier decision now appears unreasonable, or that the taxpayer disagrees with the authority.

There must be concrete circumstances capable of justifying that the case is nevertheless taken up again.

Cases on extraordinary reopening may be closely connected with a subsequent tax criminal case, in particular where the authority bases the reopening on intentional conduct or gross negligence.

The information and explanations given during the tax case may later become significant if the matter is referred for criminal assessment. It is therefore important to be aware of that risk from the outset.

HAY LAW works with both ordinary tax cases and tax criminal cases, which makes it possible to view the two parts of a case in context.

Even where the Danish Tax Agency is entitled to reopen a previous tax assessment, a separate question may arise as to whether the resulting tax claim can still be enforced.

The deadlines under the Danish Tax Administration Act and the rules on limitation of the monetary claim are two different sets of rules, and both should be assessed in the same case.

This applies in particular to older claims, or where the debt has been transferred for collection with the Danish Debt Collection Agency.