The Tax Scheme for Researchers

12 February 2024

The case considers whether a person could apply the Tax Scheme for Researchers in connection with his move to Denmark in 2016. 

There are actually two rulings, but unfortunately both rulings make for discouraging reading, and since the cases are similar, we have described only one below. More on that later.

The person in question had left Denmark on 1 January 2005, and in this connection, he had deregistered from the Danish National Register. He had not contacted the local tax administration (this was before the establishment of SKAT (the Danish Tax Agency)) separately about the move. He was still registered with the tax authorities as fully liable to tax and tax assessments were therefore issued for the years 2005 to 2010. The tax assessment for 2011 shows "No tax liability, removed from census". The reason for the changed registration is due to an automated process in SKAT's systems in order to avoid payment of compensation for increased taxes (“grøn” check) to persons who are not staying in Denmark.

The case concerns two questions, namely whether the person can apply the Tax Scheme for Researchers and whether he was entitled to an adjustment of the tax assessments for 2005 to 2010 in accordance with the rules on extraordinary reopening.

High Court

The High Court found that he could not apply the Tax Scheme for Researchers, as he had been registered as fully liable to tax within the last 10 years before moving to Denmark and starting his employment in Denmark. Therefore, the requirements for applying the Tax Scheme for Researchers were not met.

In relation to extraordinary reopening for the respective years, the rules are usually very strict, and it is difficult to obtain a reopening of old tax assessments. However, based on the specific circumstances, the High Court found that the person could legitimately believe that he was not liable to tax for the respective years (which in fact he had not been) and therefore, special circumstances were present which could justify an extraordinary reopening. Furthermore, the High Court found that the person only became aware of the erroneous registration for the years 2005 to 2010 when the request for taxation under the Tax Scheme for Researcher was rejected and that the 6-month reaction deadline had been met.

There was dissent in the High Court, where the above was the opinion of two of the judges. The third judge believed that when assessing whether the person could apply the Tax Scheme for Researchers, one should look at the material, i.e. whether the person had actually been liable to tax or not. In other words, how he was registered with tax authorities should be disregarded. Since he had not been liable to pay tax, he should be able to apply the Tax Scheme for Researchers, and it was therefore not necessary to assess whether an extraordinary reopening could take place.

This means that the three judges come to the same conclusion – i.e. that the Tax Scheme for Researchers could be applied. However, the way to get there was different. The majority of the judges believed that the old registrations should be changed and that he could thus apply the Tax Scheme for Researchers.

Supreme Court

Now the Supreme Court has spoken, and their conclusion is as follows:

• No extraordinary reopening could be granted.
• When assessing the 10-year period in relation to the Tax Scheme for Researchers, one must consider the registrations and what the tax assessments for the old years look like (and not what is actually materially correct).

Reopening

The Supreme Court does not grant the right to reopen the old income years. They do not consider the conditions for extraordinary reopening to be met – in this case there are no special circumstances. Unlike the Eastern High Court, the Supreme Court does not believe that there is an authority error when SKAT has considered the person liable to tax in the years following the move. The person only notified the local National Register of the move. He did not notify the local tax administration and no exit tax return (emigration tax) was submitted, as was required at the time (alternatively, applied for a postponement to the normal tax return deadline). That is easy to say now, because back then, it was rarely enforced that you had to file an exit tax return/request a postponement.

The consequence is that the old tax assessments stand to be true and cannot be adjusted.

The 10-year rule

One of the criteria for being covered by the Tax Scheme for Researchers is that you must not have been fully liable to tax or limited tax liability on certain income to Denmark. 

A dispute in this case is whether to base the ruling on the assumption that the person has been liable to pay tax in Denmark or whether to base the ruling on the registrations. Undoubtedly, the person has not been fully taxable, although he has been registered as such. The conclusion is that you should base the ruling on the registrations and thus, not look at the material. Therefore, the incorrect registrations, which cannot be changed via extraordinary reopening, put a stop to the person being able to apply the Tax Scheme for Researchers.

What now?

There are a number of cases, partly with the Danish Tax Agency and partly in the appeals system, which have been awaiting the Supreme Court's ruling. These may now be finalised. And it will probably end with those involved receiving a pretty hefty residual tax if they have applied the lower researcher tax (and not the somewhat higher "ordinary tax").

The ruling does not address what would have happened if the person had notified the tax authorities of the move, but if this information had not been recorded correctly. It is possible that this would have led to a different conclusion and that the conditions for extraordinary reopening would then have been met. Then, the issue becomes when the point of knowledge occurs and whether the reaction deadline has been met. 

In any case, you may conclude that, in addition to reporting your move at borger.dk, you must notify the Danish Tax Agency (by submitting form 04.029). At the same time, you must ensure that the registration is correct for the years after moving. The surprise 10+ years later can turn out to be substantial if you do not ensure the correct registration when leaving Denmark.