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Article:

Limitation – Reopening of old tax assessments

26 May 2017

Anders Kiærskou , Manager, Tax |

The High Court assessed whether two taxpayers intentionally or with gross negligence caused the tax authorities to make tax assessments on an incorrect basis, thus allowing resumption of the taxpayers’ old tax assessments.

In a recent ruling, the High Court prohibited the Danish tax authorities from reopening two individual taxpayers’ tax assessments for income years subject to limitation according the ordinary limitation period, which ends on 1 May in the fourth year following the income year.

The Danish tax authorities tried evoking a rule allowing resumption of older tax assessments in cases where the taxpayer or someone on his behalf intentionally or with gross negligence has caused the tax authorities to make a tax assessment on an incomplete or incorrect basis.

The ruling serves to show that there are limits to what extent the Danish tax authorities can reopen older tax assessments based on the notion that the taxpayer or someone on his behalf intentionally or with gross negligence has caused the tax authorities to make a tax assessment on an incomplete or incorrect basis.

Not only must the tax authorities observe the tax rules on limitation. Similarly, as described in the April 2017 issue of tax:watch regarding a ruling from the Supreme Court, a taxpayer must observe the limitation rules – even when the result of not doing so is paying taxes on income not received.

Background

The case before the High Court concerned whether a married couple was resident in Denmark for tax purposes during the income years 2003-2007.

Further, the case concerned whether there was a basis for extraordinary resumption of the tax assessments for the income years 2003-2006, which were subject to limitation as the ordinary limitation period, as stated above, had expired. It was undisputed that the Danish tax authorities amended the tax assessments for the income year 2007 timely.

The High Court found that the taxpayers had not terminated their Danish tax residence for the income years 2003-2007.

Further, the court found that the taxpayers were in fact residing in Denmark, regardless of registration etc. in Switzerland and submitted declarations of stay in Switzerland.

Hence, the High Court concluded that the taxpayers were resident in Denmark for tax purposes.

However, the majority of the judges did not find that the taxpayers intentionally or with gross negligence had provided incorrect information to the Danish tax authorities for the use of tax assessments.

The taxpayers had filed Danish tax returns as non-residents for the income years in question and it was noted by the court that the taxpayers had followed advice from their lawyer.

Hence, the majority of the court did not find that the conditions for extraordinary resumption of the tax assessments for 2003-2006 were met, as the taxpayers had not intentionally or with gross negligence provided incorrect information to the Danish tax authorities for the use of tax assessments.

A minority of the judges voted to uphold the verdict of the district court thereby allowing resumption of the tax assessments for 2003-2006.

The above article is taken from tax:watch, our electronic English newsletter on Danish Tax and VAT matters. tax:watch is issued on the last Friday of each month and is free of charge. Please sign up here.