Harsher Penalties for VAT Evasion

Harsher Penalties for VAT Evasion

The Danish Parliament enacted Law No. 1795 of December 28, 2023, on December 28, 2023, amending the VAT Act, the Collection Act, the Tax Control Act, and various other laws. This law implements a political agreement on stricter and more expedited sanctions in the tax area. The most important changes are described below.

Doubling of the Fine Size - In return, imprisonment will only be considered if the evasion exceeds DKK 500,000.

Until now, the size of fines for violations of VAT and duty legislation with additional fines was measured as either 1x or ½x the evasion, depending on whether the violation was considered intentional or due to gross negligence. Going forward, fines will be measured as 2x or 1x the evasion. This means that if a company has evaded for example DKK 500,000 due to a lack of calculation of partial VAT deduction rights over 3 years, and this evasion is considered to have been committed due to gross negligence, then the company will have to both pay the DKK 500,000 in VAT, AND receive a fine of the same amount. If the act is considered intentional, then the fine will be DKK 1 million. In this context, it should also be remembered that the fine CANNOT be deducted in the tax account – fines thus directly reduce the company's profit.

The law also means that more cases can be decided by the tax authorities - the limit for when an intentional violation must be sent to the police rises to DKK 500,000. This change is intended to free up resources at the police and prosecution authorities - but at the same time, it means that imprisonment becomes a risk only if the amount exceeds the mentioned half million.

Personal Liability for the Company's Management

The law also means that the management in companies will be held personally responsible for VAT and duty evasions that have arisen on the basis of false or fictitious invoices. The new rule in Section 10d of the Collection Act mentions individuals "who participate in the management" of the company, and this refers not only to those whose names are listed in the CVR system but also to individuals who actually participate in the management of the company. The liability of these individuals is personal, unlimited, and joint and several, which in principle means that the Tax Agency can pursue the collection of evasion and fines directly from the management before directing the claim against the company.

Our Opinion

The tightening of the rules on fines means that it becomes even more important to ensure that VAT and duties are settled correctly - and should an accident occur and the Tax Agency finds larger monetary errors, it is important to seek help from the company's auditor or lawyer, with a view to the Tax Agency's assessment between for example unintentional errors or gross negligence suddenly becomes much more important. In this connection, it is worth noting that the Tax Agency actually has an incentive to apply a stricter assessment, as the revenue from the higher fines is part of the Tax Agency's budget for the years 2023-2027.