Joint registration not valid due to abuse of the VAT Act

Case no. BS-16178/2021-HJR
Judgment delivered on 3 April 2024

The Danish Ministry of Taxation
vs.
GF Forsikring A/S
and
GF IT A/S

In March 2008, GF Forsikring A/S set up a subsidiary, GF IT A/S, the object of which was to develop primarily a new IT system to be made available to GF Forsikring, which as an insurance company only had a partial right to deduct VAT. GF IT was entitled to a full VAT deduction for the system development costs, and in the third quarter of 2009, GF IT began letting the system to GF Forsikring, which paid VAT on the rental of the system.

With effect from 1 January 2010, the GF companies were jointly registered for VAT purposes pursuant to the VAT Act at their request, which meant that the rental of the IT system from GF IT to GF Forsikring was no longer subject to VAT.

The Supreme Court stated that the establishment of the subsidiary in 2008 in combination with the joint registration in 2010 gave rise to unjustified advantages that were contrary to the purpose of the VAT system, and it found that the purpose of the construction was to obtain the tax advantage. On this basis, the Supreme Court ruled that the construction abused the VAT rules.

As a result of this, the GF companies could not rely on the advantage of the joint registration, and the transactions made between the companies had to be redefined so that they were no longer to be considered transactions exempt from VAT, but instead as transactions subject to VAT between separate companies. This applied until 1 October 2014, when five years had passed since GF IT began letting the IT system to GF Forsikring.

The High Court had reached a different conclusion.