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Supreme Court of Denmark

VAT liability for staff leasing 

Case no. 198/2013

Judgment delivered on 6 October 2015

Hovedstadens Lokalbaner A/S
The Danish Ministry of Taxation

Leasing of private railway officials from Hovedstadens Lokalbaner A/S to Lokalbanen A/S was subject to VAT

As from 1 January 2001, the State's ownership interests in Denmark's private railways were transferred to the counties. In the metropolitan area, this meant that HUR took over the State's ownership interests in the following private railways (local railways) in the area: Hornbæk, Nærum, Øst, Frederiksværk and Gribskov. The approach taken by HUR was to merge the five local railways into one company, Hovedstadens Lokalbaner A/S. As part of the merger, the company assumed, among other things, all responsibilities towards the staff who had been employed by the five local railways with the status of civil servants (the private railway officials).

In connection with the merger, the operation of the railways was transferred to the operator, Lokalbanen A/S, subject to a separate agreement. Hovedstadens Lokalbaner then wished to transfer the staff to Lokalbanen, and indeed transferred the employees employed under a collective agreement, while it was not thought possible to transfer the private railway officials. Accordingly, they were initially only leased to Lokalbanen. Then in 2005, the private railway officials were also transferred.

The case before the Supreme Court concerned whether Hovedstadens Lokalbaner was liable to pay VAT on the leasing of the private railway officials in 2003-2005, and if so, how such VAT was to be calculated.

The Supreme Court stated, among other things, that Hovedstadens Lokalbaner's leasing of the private railway officials in 2003-2005 was subject to VAT under section 4(1), cf. section 3(1), of the Danish VAT Act. It was, thus, irrelevant that the remuneration was not paid directly to Hovedstadens Lokalbaner, but that it was paid by way of Lokalbanen's payment of salary etc. to the private railway officials. For the purposes of VAT, it was also irrelevant that there was no intention to make a profit, and that no profit was indeed made, for Hovedstadens Lokalbaner from the staff leasing. The Supreme Court also found that the treatment for VAT purposes of the leasing of officials from the State to, among others, Post Danmark A/S could not lead to exemption from VAT for Hovedstadens Lokalbaner in this case. Finally, VAT was due on the total costs for salaries etc.

The High Court had reached the same conclusion.


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