VAT deductions requires proper invoices

If you are buying services from subcontractors – especially in case of cleaning, transportation, or construction – you need to pay attention to, if the invoices fulfil the invoice requirements to achieve VAT deductions.

A company can deduct the input VAT, if it achieves an invoice that fulfils the requirements from the supplier cf. Danish VAT Act. This means that the invoice needs to feature the following information:

  1. Date of issue (date of invoice).
  2. Invoice number (A consecutive number that builds on one or more series).
  3. Seller’s VAT registered number (CVR number).
  4. Seller’s name and address.
  5. Buyer’s name and address.
  6. The amount and sort of the delivered articles and/or services.
  7. Date of delivery (if it differs from date of issue).
  8. VAT basis, which means the price per unit without VAT, i.e., price reduction and discounts etc., if it is not included in the price per unit.
  9. The current VAT rates.
  10. The amount of VAT to be paid.

These rules are rather unproblematic in most cases. In fact, this also applies even though the rules may not have been fully complied, as long as the Danish Tax Agency at an inspection can ascertain that the supplier in fact has paid the VAT on the issued invoice.  However, if this is not the case, even the smallest defects of the invoice can lead to the buyer missing the deduction of the input VAT.

This can be illustrated with a recent ruling from the city court in Copenhagen.

Subcontractor to the hotel industry

The case concerned a private limited company whose business primarily consisted of delivering cleaning services to hotels and restaurants, but which did not use its own employees. Instead, the company let the work be executed by various subcontractors, from which the company for months received invoices for the conducted work.

For four of these subcontractors, the achieved invoices did not include information about, where the work was conducted, and how the amount of the invoices was calculated. It was a common characteristic for these four subcontractors that none of them had outlined VAT. Furthermore, neither the Danish Tax Agency or the CEO of the private limited company was able to get in contact with the companies, who also had not registered any or only few employees although the conducted work was rather comprehensive.

On this basis, the Danish Tax Agency refused deduction of the input VAT with an amount of 563.146 DKK, which was upheld by the Danish National Tax Tribunal.

Part of the case was brought before the city court which, however, upheld the tax authorities. This was done with reference to the fact that the invoices alone only contained a text stating that the service was cleaning for a month and a total amount of it. In addition, the agreement with the subcontractors did not contain a description of the parties’ obligations to each other. Furthermore, for a period, no worksheets or other documentation had been submitted that the work had been carried out, and there were conflicting explanations as to how the number of working hours was checked. The fact that there was a payment trail, could not change the result in these circumstances. The verdict has been appealed to the Eastern High Court.   

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