VAT on loss on debtors - change of Danish practice(Taxwatch (Tax news in english))
30-06-2010 07:20
Af
Søren Engers Pedersen
In continuation of a couple of binding rulings from the General Commissioners of Taxes, the Danish tax authorities have issued new guidelines regarding the access to adjust VAT on loss on debtors.
With the change, the authorities signal, that in the future to a much higher degree there has to be performed an evaluation of when a loss is finally ascertained and thereby entitles that VAT regarding the loss can be reversed. This is particularly encouraging. Up till now, a lot of businesses have experienced that what they themselves thought was an ascertained loss, was not that for VAT purposes, because it did not fit into the very hand-and-fast set of rules.
The concrete background for the softening is two binding rulings from the General Commissioners of Taxes. The first ruling concerned a business that obtained recognition of adjustment regarding debtors, who had disappeared abroad. The business had not taken any judicial steps, but could substantiate that the debtors had emigrated without leaving information on where they had emigrated to.
The second binding ruling concerned a business that via its own collection bureau had tried to collect receivables which were subsequently turned over to a third party collection bureau. The General Commissioners of Taxes recognized that adjustment was possible, when the receivables were transferred to “surveillance treatment”. According to practice up to now an adjustment would require that judicial steps had been undertaken for instance in the form of distress or similar.
BDO’s opinion
The two cases concern very different circumstances, where the businesses had established modes of operation that gave maximum security, that the receivables could not be collected.
However, according to our opinion there is no doubt, that the change of practice at the same time involves that it is possible in other situations to obtain access to make adjustment for losses, if it can be proven that one has tried to collect a receivable, that the attempts have been in vain and that further actions are looked at as hopeless.
At the same time the change involves a certain uncertainty because in all cases a concrete evaluation will have to be performed. But we expect that pretty soon further interpretation contributions will be available in the form of requests for binding rulings so that the state of law will be clearer than today.
Questions can be addressed to Soren Engers Pedersen at sep@bdo.dk
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