Success in the District Court, no heightened burden of proof for invoices from subcontractors

The Ministry of Taxation referred to circumstances concerning the subcontractors

The Ministry of Taxation's view was based mainly on a number of circumstances concerning the specific subcontractors.

Reference was made, among other things, to suspicion that some of the subcontractors might be involved in chain fraud.

We argued that circumstances concerning only the subcontractors could not in themselves lead to our client being subject to a heightened burden of proof.

It was therefore our opinion that further documentation could not be required solely by reference to circumstances at the companies with which the client had done business.

The court agreed

The District Court found in our favour.

The court found that the client could not be held responsible for individual subcontractors being suspected of participating in chain fraud.

This was not in itself sufficient to impose a heightened burden of proof on the client.

The court also assumed that it had not been proven that our client knew or should have known that the subcontractors in question were participating in fraud.

Suspicion against a subcontractor is not enough

The case illustrates an important issue in tax and VAT cases concerning subcontractors.

If the Tax Agency raises doubts about the reality of an invoice, heightened requirements may, depending on the circumstances, be imposed on the company's documentation.

But what is decisive is which concrete circumstances can be attributed to the company itself.

Suspicion of irregularities at a subcontractor cannot simply be transferred to the purchaser and cause it to lose its VAT deduction or be subject to a heightened burden of proof.

A concrete assessment must be made of the company's own circumstances and of what the company knew or should have known about the suppliers in question.

Cases on VAT deduction and subcontractors

We regularly assist in cases where the Tax Agency challenges invoices from subcontractors, denies VAT deduction or claims that a company was involved in or should have been aware of chain fraud.

In such cases it can be decisive to test whether the Tax Agency's objections actually concern the company in question, or rest solely on circumstances relating to a third party.

If you have received a proposal or a decision from the Tax Agency on VAT deduction, subcontractors, the reality of invoices or chain fraud, you are welcome to contact us for a non-binding assessment of the case.