The new transfer pricing documentation requirements for Danish entities

Please kindly note that after several changes to transfer pricing (TP) documentation rules, which were introduced last year and that are applicable from 2021 onwards, all Danish entities and permanent establishments with cross-border related party transactions on a global group consolidated level:

  • with more than 250 employees and/or
  • more than DKK 125 million in assets and more than DKK 250 million in revenue

are obliged to submit TP documentation (Master file with group level information and Local file containing entity level information) annually within 60 days after the due date for the filing of the annual corporate income tax return. For financial year that ended on December 31st, 2021 the submission deadline expires on August 29th, 2022.

All Danish companies and permanent establishments that do not meet the above mentioned general threshold are still subject to TP documentation submission requirements if they have controlled transactions with a counterparty located in a jurisdiction with which Denmark does not have a tax treaty in place.

TP documentation is not required for controlled domestic transactions between Danish group entities subject to ordinary corporate income tax in Denmark, except for cases when domestic transactions are carried out between companies that are taxed asymmetrically, for instance, between a corporate taxed entity and a tonnage taxed entity or a hydro carbon taxed or a cooperative taxed entity.

As usual, multinational groups with consolidated revenue exceeding DKK 5.6 billion (approx. EUR 750 million) who have presence in Denmark are subject to Country-by-Country reporting requirements as well in line with the OECD Guidelines for Transfer Pricing. A Country-by-Country reporting notification should be submitted to the Danish tax authorities annually before the end of the financial year.

Lastly, based on the mentioned last year changes to the Danish TP rules, it is now a requirement to support arm’s length pricing by a benchmarking study when the transactional net margin method is used and/or if there is no alternative way to illustrate the arm’s length nature of the pricing (e.g. internal CUP data). The new wording of the law applies for FY2022 onwards.

Tax implications in case of failure to comply with TP requirements

Missing or insufficient TP documentation (for instance, benchmarking study is missing) expose the taxpayer to potential discretionary assessments of the taxable income and potential penalties for non-compliance with the Danish TP documentation requirements. In order to impose penalties in case of insufficient TP documentation, the tax authorities have the burden of proof that the insufficient documentation is due to the taxpayer’s gross negligence or intent.

As a starting point the penalty is DKK 250,000 (approx. EUR 33,500) per legal entity per year. If a sufficient TP documentation is prepared and submitted subsequently, the penalty may be reduced to DKK 125,000. Additionally, a penalty of 10% may be imposed on a potential income adjustment.

Considering the above, we hope that your Company complies with the above mentioned TP requirements for FY2021 and have already submitted (or will soon submit) TP documentation to the tax authorities. If otherwise, please kindly note that Magnusson team is ready to assist you and can prepare Master and Local files upon your request.

In case you would like to know more about TP requirements applicable in your Company’s case and related Magnusson TP services, please feel free to contact us.