Denmark has introduced new rules which stipulate an obligation for all Danish companies meeting certain criteria to submit transfer pricing documentation (“TP documentation”) for financial year 2021 to the Danish Tax Authority (“DTA”) during 2022.
The TP documentation must be submitted to the DTA no later than 60 days after the deadline for filing of the corporate income tax return. Danish companies with calendar year as financial year must submit the income tax return no later than 30 June, which means that the TP documentation must be submitted end of August.
In case of non-compliance of the formal TP documentation requirements or late filing, penalties of DKK 250,000 per company and year plus 10 percent of a potential income adjustment may be imposed. In addition, the burden of proof may shift to the taxpayer in the event of a tax audit relating to transfer pricing.
Danish companies are required to prepare TP documentation if they belong to a multinational group that:
- Has 250 or more employees, or
- Has a turnover (revenue) exceeding DKK 250 million and a balance sheet total exceeding DKK 125 million.
The above thresholds are measured on a group level. Permanent establishments are also covered by the TP documentation requirements.
The TP documentation to be submitted consists of two documents: a Master file and a Local file. The Master file is prepared for the group’s operations and a Local file for each country where the group operates.
- The Master file contains, e.g., an overview of the group’s operations, transfer pricing policy, information on important agreements, financing and financial information such as
consolidated accounts.
- The Local file contains, e.g., detailed information about the local operations and the cross-border transactions in which the companies in the relevant country are a party.
In addition, the transfer pricing method for each transaction must be documented and financial information such as the annual report must be attached.
To support that the pricing of intra-group transactions is aligned with the arm’s length principle (i.e., market price), relevant benchmarking analyses should be prepared.
Our Comments
Groups that conduct business in Denmark should review their routines for preparing and updating TP documentation, as well as benchmarking analyses, as soon as possible to ensure that these meet the Danish legal requirements. If no TP documentation has yet been prepared for the financial year 2021, it is essential to initiate the work of preparing the TP documentation and finalize it in due time before the deadline for submitting it to the DTA later this year.
We are happy to discuss this further with you and to assist with setting up a plan for your TP documentation.
You can find the original article written by Patrik Sedlar and Petter Lohi on Svalner’s website.
