Every year the Danish tax authorities publish an activity plan were they highlight what main focus areas will be for the present year. According to the activity plan released recently by the Danish tax authorities also known as SKAT, the tax authorities intend to step up efforts and increase resources deployed in specific areas such as transfer pricing, car leasing, dividend distribution, etc. Compliance by large companies and multinational groups will also remain a focus area.
On 13 April 2018, SKAT released its activity plan for 2018. The activity plan is distinguished by including only a summary description of SKAT's control measures as opposed to the extensive activity plans released in previous years. This year's activity plan provides no detailed grounds for the individual tax control measures.
Medium-sized and large enterprises
In 2018, SKAT will continue to keep an eye on medium-sized and large enterprises, that is, enterprises generating revenue of between DKK 14m and DKK 500m or total annual payroll costs exceeding DKK 4m.
In 2018, SKAT will target its focus on, among other things, consolidated enterprises, compliance by principal shareholders and enterprises achieving revenue exceeding DKK 100m as well as give increased attention to VAT issues, involving both medium-sized and large enterprises. This includes targeted checks and monitoring and area-specific analyses.
The VAT initiatives are focused on industries which, according to empirical studies, often entail VAT revenue losses and which, owing to new legislation and complex circumstances, cause such losses to exceed average losses.
The largest corporations
In 2018, SKAT's focus on enterprises will extensively be based on and broken down by industry. The activity plan covers various specific areas, such as the oil industry, enterprises subject to Danish tonnage tax and the financial sector, which will experience increased control measures.
The collaboration between SKAT and the largest groups in Denmark must be strengthened further to generally improve compliance and reduce the risk of errors. This collaboration is to help identify the reasons for errors, among other things, so that relevant measures may be initiated.
As the overall VAT Gap (the difference between expected VAT revenues and VAT actually collected) for the largest corporations has not been quantified, SKAT's activities in 2018 will include analysing compliance among these corporations. The quantification will be carried out based on a compliance check. Withholding tax on dividends, interest and royalties In its activity plan, SKAT states that focus will also remain on withholding tax on dividends, interest and royalties. Focus on this area is to help ensure correct withholding tax on cash flows made to tax havens or other relevant countries. This focus area is a continuation of recent years' activities, to which SKAT has decided to give higher priority, among other things as a result of the incident in 2015 about dividend tax refunds to the tune of DKK 12.4bn – in all probability granted on the wrong basis.
In 2018, SKAT will continue focusing on transfer pricing, the number of such cases having increased steadily over the past years.
SKAT has launched a project for 2018, which is known as "Project Transfer Pricing". Its objective is to reduce the risk of the arm's length principle not being applied to intra-group transactions. In order to be successful in achieving this objective, SKAT will zero in on analysing, supporting and guiding the enterprises subject to control measures.
Moreover, SKAT will strive to remedy transfer pricing double taxation of enterprises through negotiations with the tax authorities in the relevant countries.
Internet based enterprises
In 2018, SKAT's focus will be to ensure that non-Danish internet-based enterprises offering goods and/or electronic services to Danish consumers report correct VAT to Denmark. The project will have particular focus on distance sales and electronic services, including the One Stop VAT scheme (One Stop Moms ordningen) Car leasing SKAT will continue to list cars as a focus area in 2018 as well. Measures will be taken in the form of increased control to ensure correct registration and taxation of cars. Focus will be directed primarily at the formalities of registration, closely followed by the valuation of cars as the latter forms the basis for fixing the registration fees.
To ensure compliance, SKAT intends to continue analysing the registration fee refunds made for cars to be exported and registered abroad.
On the basis of its 2018 activity plan, we expect that SKAT will maintain its focus on companies with large revenue and on multinational groups, including Danish enterprises owned by equity funds. Such companies are governed by the most complex part of Danish tax legislation, and, on top of that, Danish tax rules are generally considered to be some of the most complex ones globally. Moreover, the focus on cross-border tax issues intensifies increasingly, and any future international regulation will add yet another element to the state of complexity. The medium-sized, large and the largest enterprises may still expect having to factor in considerable resource spending on responding to inquiries made by the Danish tax authorities and to ensure that compliance is satisfactory not only with Danish and international rules in general, but also with transfer pricing regulation in particular.
Finally, principal shareholders in medium-sized and large corporations should consider in particular whether the relationships between the enterprises and their respective principal shareholders are in compliance with current tax legislation.