VAT recovery on share deal advisory costs

The Danish Tax Council (DTC) recently ruled that the place of supply for advisory services provided by a foreign company to a Danish holding company (BidCo) was not located in Denmark for VAT purposes.

The DTC determined that BidCo did not qualify as a taxable entity for VAT purposes, as its sole function was to hold shares. Furthermore, BidCo was not considered to be established in Denmark since it had no employees and its management was located in a third country, where all key decisions were made.

The DTC then assessed whether the place of supply of the services BidCo received should follow the general rule for services provided to non-taxable persons - i.e. where the supplier is established - or if it should be governed by the Danish VAT Act provision implementing Article 59a(b) of the VAT Directive. Under this provision, the place of supply for advisory services, normally located for VAT outside of the EU according to the general rule, is deemed to be in Denmark if the services are “effectively used and enjoyed” in Denmark.

In this instance, the Danish use-and-enjoyment rule applied only if the supplier itself was established in Denmark. Since the supplier was not established in Denmark, the general rule prevailed, meaning the place of supply was considered to remain outside of the EU.

As a result, BidCo was not liable for Danish VAT (under the reverse charge) on the advisory services it purchased.

Key takeaway

As the DTC binding ruling reflects, navigating VAT regulations can be complex, in particular regarding cross-border transactions. Understanding how the place of supply is determined is essential for ensuring compliance, avoiding unexpected liabilities, and mitigating VAT risks.