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Border adjustment regulations in the Danish Gravel tax. Senior manager Tor Christensen The Danish Ministry of Taxation (Skatteministeriet). The purpose of border adjustment regulations.
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Border adjustment regulations in the Danish Gravel tax Senior manager Tor Christensen The Danish Ministry of Taxation (Skatteministeriet)
The purpose of border adjustment regulations • In order to ensure that domestically and imported raw materials are treated equally, so that competition is undisturbed. • In order to ensure that exported resources are untaxed, to ensure that exports are unaffected. • But also to take account for the EU-treaty and other international treaties, which ensure the free movement of goods.
Registered enterprises – Extraction and import • All raw materials found in Denmark are taxed – see law annex 1. All similar imported raw materials are also taxed – see law annex 2. • Companies which extract or import taxed raw materials have to be registered according to the law. The tax has to be paid of the amount of raw materials, which has been handed out from the company in the tax period. • Registered enterprises are entitled to receive taxable raw materials from other registered enterprises without the tax being paid. The same applies to import.
Export – registered enterprises • In the statement of the taxable quantity of raw materials the registered enterprises can deduct the quantity of taxable raw materials that is exported. • As documentation for the export the registered company has to present: • a) A copy of the invoice regarding the exported raw materials, and • b) Written purchase order, correspondence with the buyer, bank statement etc.
Export – non registered enterprises • Suppose a Danish enterprise produce tiles and use taxable raw materials, e.g. clay, from a registered enterprise in Denmark. The clay will be taxed when it is used for the production of tiles. If the tiles afterwards are exported there is a need for the possibility of reimbursement. • Therefore in the case of commercial export of raw materials which have undergone simple or more extensive processing the customs and tax administration shall reimburse the tax paid if the annual reimbursement is at least DKK 500. The statement shall be carried out in the aggregate once a year to keep the administrative costs down. • The exporting company have to present documentation regarding the amount of raw materials used form the production enterprise, e.g. the tile producer if the exporting company is different from the producer.
Special regulations regarding cement • The tax on Danish-produced cement manufactured from raw materials listed in Annex 1 is DKK 5 per m3 of the raw material, if the producer can document the quantity of raw materials used in the manufacturing process. If no such documentation exists, tax shall be paid in accordance with the conversion factors quoted in Annex 2. • The tax on imported cement referred to in Annex 2 is also DKK 5 per m3 and is paid in accordance with the conversion factors quoted in Annex 1, if the importer can document the quantity of raw materials used in the manufacturing process. If no such documentation exists, tax shall be paid in accordance with the conversion factors quoted in Annex 2.
Example 1 – import of 1000 t. of cement • Case 1: Suppose the importer can document that there has been used 571.4 tonnes of chalk and 1000 tonnes of sand to produce the 1000 tonnes of cement. Then he can use the conversion factors in annex 1, which is 0,7 and 0.6, so that 400 m3 of chalk and 600 m3 sand has been used to produce the cement and the total tax payment will thereby be 5000 DKK. • Case 2: Suppose that the importer cannot document the amount of raw materials used to produce the cement. Then annex 2 apply and the version factor will be 1,1 so that the 1000 tonnes correspond to 1100 m3 and the total tax payment will be 5.500 DKK.
Example 2 – export of 1000 t. of cement • Case 1: Suppose the producer can document that there has been used 571.4 tonnes of chalk and 1000 tonnes of sand to produce the 1000 tonnes of cement. Then he can use the conversion factors in annex 1 which 0,7 and 0.6, so that 400 m3 of chalk and 600 m3 sand has been used to produce the cement and the total amount he have exported is 1000 m3 which he can deduct in the taxable quantity. • Case 2: Suppose that the producer cannot document the amount of raw materials used to produce the cement. Then annex 2 apply and the conversion factor will be 1,1 so that the 1000 tonnes correspond to 1100 m3 and this he can deduct in the taxable quantity.
Example 3 – export of tiles • Suppose that there has been used 5000 tonnes of clay to produce the exported amount of tiles. Then the taxable amount of clay will be 3000 m3 (5000x0.6) and the tax paid on the clay will amount to 15000 DKK, so that the exporter will get this amount reimbursed.
Use of border adjustment regulations in general • As in the case with the gravel tax but in addition there will also be a so called • cover tax “dækningsafgift” on imports. Such a tax is not present in the gravel tax, so e.g. imported tiles are untaxed. However, in this case the distortion is minor as imports of this kind of products are small in Denmark. • But it is used in other excise taxes e.g. the tax on fertilizer.
