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Reimbursement of litigation costs

27 January 2017

A bill recently adopted by the Danish parliament reintroduces reimbursement of litigation costs for companies in cases concerning tax matters.

As mentioned in the August 2016 issue of tax:watch, the Minister of Taxation wishes to strengthen the rule of law when it comes to taxation in Denmark.

Due to the highly complex nature of the tax law and the lengthy proceedings in tax disputes, litigation costs can be considerable.

This may prevent businesses from pursuing an appeal when it comes to rulings issued by the Danish tax authorities that are contrary to the interpretation of the tax rules by the business and professional tax advisors.

The rules for reimbursement of litigation costs for companies where abolished in 2009 but remained in place for individual taxpayers. Companies could instead deduct the costs, but with a tax rate of 22 pct., the benefit is limited.

Hence, one initiative to strengthen the rule of law when it comes to taxation in Denmark is reintroduction of rules concerning reimbursement of litigation costs in tax matters for companies. This has happened with the recent adoption of a bill by the Danish parliament. Consequently, the costs will no longer be deductible.

According to the new rules, the state will reimburse 50 pct. of the litigation costs associated with cases concerning taxation of companies.

If the company is vindicated, the state will cover 100 pct. of the litigation costs.

Further, the state will cover 100 pct. of the litigation costs in cases where the Danish tax authorities appeal a ruling, regardless of whether the taxpayer is vindicated.

However, litigation costs are not reimbursed in cases regarding rulings on reimbursement of litigation costs.

The new rules take effect from 1 January 2017. Litigation costs related to cases that are already pending on this date is also covered by the new rules provided the costs concern services rendered on 1 January 2017 or later.

Postponement of the deadline for appeal to the courts

In addition, the recently adopted bill stipulates that the deadline of three months for bringing a final administrative decision to the courts is postponed, if a complaint is lodged to the Parliamentary Ombudsman before the deadline expires.

The purpose is to ensure that taxpayers can complain to the Parliamentary Ombudsman without risking that the deadline for appeal to the courts expires before the case is closed by the Ombudsman.

Incidentally, the Parliamentary Ombudsman recently established a specific office to deal with tax matters.

The deadline for appeal to the courts expire one month after the case has been closed by the Ombudsman.


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.