Ruling from the Danish supreme court denying repayment of vat

On 1 December 2023 the Danish Supreme Court reached a ruling where the court concluded that a company was not entitled to repayment of VAT due to incorrectly invoiced VAT by a third party.

The main question in the case was whether a company, X, could claim a VAT amount from the Danish Tax Agency. X purchased goods from the supplier Y, who charged Danish VAT on the invoices for the goods. Subsequently, an inspection by the Danish Tax Agency discovered that Austrian and Dutch VAT should have been charged instead. The company, Y, that had incorrectly charged Danish VAT on its invoices to X, had not paid the VAT amount to the Danish Tax Agency and was now bankrupt.

Thus, the question was if X could claim the VAT amount repaid from the Danish Tax Agency despite Y had not paid the collected VAT amount to the Danish Tax Agency.

Under the proceedings the parties agreed that Austrian and Dutch VAT was relevant. In front of the High Court, X firstly argued that X was entitled to deduct the collected and paid Danish VAT on the goods in question. X secondly claimed that it appears from EU case law that if the seller's refund of the incorrectly invoiced VAT is impossible or disproportionately difficult, in particular due to the seller's insolvency, the buyer must be able to pursue his claim directly towards the tax authorities.

The particular point of contention was whether it is a condition to claim the repayment directly from the Danish Tax Agency that the seller had in fact paid the VAT amount to the Danish Tax Agency.

Furthermore, the Danish Tax Ministry argued that EU case law clearly indicates that a balance must be struck between who is most likely to bear the risk that something has been charged incorrectly. The Danish Tax Ministry hereby claimed that the authorities are not intended to bear the risk of the incorrect VAT charges, as the mistake is solely between and due to X's and Y's circumstances.

First and foremost, the High Court ruled that X did not have a right to deduct the collected Danish VAT.

Secondly, the High Court stated that EU case law did not entail that the buyer of the goods, who had unduly paid (Danish) VAT to the supplier, could bring a refund claim against the tax authorities, but merely noted that the recipient could require a refund from the supplier under national law.

The High Court stated that the incorrect charging of Danish VAT on the invoices and the payment thereof from X to Y was solely due to the circumstances of X and Y. Now when Y had not paid the incorrect charged VAT to the Danish Tax Agency, X had thus not demonstrated that there was a basis for a repayment claim. Hence, the Danish Tax Ministry was acquitted.

Before the Danish Supreme Court only the repayment claim was argued and not the right of deduction of the VAT. The Supreme Court stated that section 52 a (7) of the Danish VAT Act (Da. “momsloven”) does not provide a basis for a third party, who has paid a VAT amount to the seller, to make a refund claim directly against the Danish Tax Agency.

The Danish Tax Agency was not obliged to repay VAT amounts to a buyer that incorrectly had been charged the buyer but not paid to the Danish Tax Agency by the seller. Also, the Supreme Court did not find such uncertainty of the interpretation of EU law that there is reason to refer a preliminary question before the EU.

Thus, the Supreme Court upheld the ruling of the Danish High Court.