As a main rule, when Danish companies sell goods or services to companies in other EU countries, the sale must be invoiced without VAT because it is subject to the rules on reverse charge. Hence, it is the buyer who must settle VAT.
In order for the invoice to be issued without VAT, the seller must ensure that the buyer's VAT number is correct. The seller is required to report the sale and the buyer's VAT number to the EU sales list. This applies both to the sale of goods and services. However, we often experience that companies overlook the latter.
The EU sales list
The list is a means by which the tax authorities in the respective EU countries ensure the correct VAT treatment of goods and services traded within the EU.
Reporting is a supplement to the companies' obligation to verify the validity of their EU customers’ VAT numbers. Companies must carry out the verification regularly and at least quarterly.
In Denmark, reporting should take place no later than the 25th of each month, following the month of the sale, and the report must match the amount reported in box B on the VAT return. This is most easily ensured if the required number of accounts are set up in the company’s accounting system.
Consequences of failure to report
Failure to report to the EU sales list does not necessarily imply that the sale did not qualify for the reverse charge procedure. However, it can lead to inspections from the Danish tax authorities. If in this context, it cannot be substantiated that the buyer had a valid VAT number at the time of sale, the Danish tax authorities can require the seller to settle VAT on the sale of 25 pct. of the invoiced amount. It will then be up to the seller to recover the VAT from the buyer.
The risk of not being able to demonstrate the buyer's VAT number rises as time goes by. For example, the buyer may have changed VAT number, been sold, closed down or gone bankrupt.
In addition, the work effort of having to verify a previous buyer's VAT number will be considerable higher compared to a current buyer. Hence, there are many good reasons to ensure proper reporting to the EU sales list.
Reports from jointly registered companies
In a recently published notice, the Danish tax authorities stated that it is still accepted that companies that are subject to a joint VAT registration merely disclose their individual CVR/SE number - and not the joint registration's VAT number - on their sales invoices.
When reporting to the EU sales list, jointly registered companies are at liberty to choose whether they want to use their individual VAT number or the VAT number of the settling company in the joint registration.
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.