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Prospects for new rules on transfer pricing documentation for Danish companies

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calendar 25 August 2021
globus Denmark

Shortly before the summer holidays, the Ministry of Taxation sent a bill for consultation with amendments to the requirement for transfer pricing documentation for Danish companies. If the bill is passed, it will mean that transactions between Danish companies in the same group, or between Danish companies and their main shareholders, are exempted from the requirement to prepare and store written documentation that a transaction takes place on market terms.

When transactions are made between companies within the same group, transfer pricing (“TP”) documentation must be prepared - as the rules are now. The TP documentation must contain information on how the prices and terms of the agreement are set. However, a ruling by the European Court of Justice in 2018 showed that national transactions within member states do not need to to be handled in as limited a way as transactions that take place across national borders.

Based on this ruling, the Ministry of Taxation has made the draft bill, which contains some new and simpler rules for national transactions between Danish companies in the same group.

Exceptions and continued duties

  • According to the draft bill, companies must still prepare TP documentation for transactions if one or more of the Danish companies are taxed according to special rules. For example, companies that are taxed according to the rules for cooperatives or according to the Tonnage Tax Act.
  • Companies with less than 250 employees, which have a total balance of less than DKK 125 million or an annual turnover of less than DKK 250 million, will not be affected by a change in the rules. This is because they have already been exempted from the requirement for TP documentation since 2005.
  • Companies that, according to the draft bill, are exempt from having to submit TP documentation, will still have to calculate their income according to the arm's length principle. At the same time, the tax authorities have the right to request documentation that the arm's length principle is complied with in transactions between Danish companies in the same group.

When will the bill enter into force?

If the draft bill is passed, the new rules will apply to all income years starting on or after 1 January 2021, and to companies that have a skewed financial year from and including their accounts for 2021/2022.

IUNO’s opinion

The bill is currently sent for consultation, so the final law may end up looking different. However, it is very likely that the law will not differ much from the proposal, and that the simpler requirements for TP documentation will apply in the future.

If the bill is passed, the tax authorities will probably pay extra attention to whether the income from a transaction is calculated according to the arm's length principle. This applies particularly to transactions between Danish companies in the same group, which may have an impact on transactions with companies abroad, and if one of the companies has had a special deficit.

IUNO recommends that Danish companies that are covered by the rules on TP documentation from now on include the new rules in their considerations for future handling of transactions between companies within the group. As the final law may end up looking different from the bill, Danish companies, which are part of a group, should keep a watchful eye on this process in the future.

[Draft bill on amendment of the Tax Control Act and the Assessment Act of 23 June 2021]

When transactions are made between companies within the same group, transfer pricing (“TP”) documentation must be prepared - as the rules are now. The TP documentation must contain information on how the prices and terms of the agreement are set. However, a ruling by the European Court of Justice in 2018 showed that national transactions within member states do not need to to be handled in as limited a way as transactions that take place across national borders.

Based on this ruling, the Ministry of Taxation has made the draft bill, which contains some new and simpler rules for national transactions between Danish companies in the same group.

Exceptions and continued duties

  • According to the draft bill, companies must still prepare TP documentation for transactions if one or more of the Danish companies are taxed according to special rules. For example, companies that are taxed according to the rules for cooperatives or according to the Tonnage Tax Act.
  • Companies with less than 250 employees, which have a total balance of less than DKK 125 million or an annual turnover of less than DKK 250 million, will not be affected by a change in the rules. This is because they have already been exempted from the requirement for TP documentation since 2005.
  • Companies that, according to the draft bill, are exempt from having to submit TP documentation, will still have to calculate their income according to the arm's length principle. At the same time, the tax authorities have the right to request documentation that the arm's length principle is complied with in transactions between Danish companies in the same group.

When will the bill enter into force?

If the draft bill is passed, the new rules will apply to all income years starting on or after 1 January 2021, and to companies that have a skewed financial year from and including their accounts for 2021/2022.

IUNO’s opinion

The bill is currently sent for consultation, so the final law may end up looking different. However, it is very likely that the law will not differ much from the proposal, and that the simpler requirements for TP documentation will apply in the future.

If the bill is passed, the tax authorities will probably pay extra attention to whether the income from a transaction is calculated according to the arm's length principle. This applies particularly to transactions between Danish companies in the same group, which may have an impact on transactions with companies abroad, and if one of the companies has had a special deficit.

IUNO recommends that Danish companies that are covered by the rules on TP documentation from now on include the new rules in their considerations for future handling of transactions between companies within the group. As the final law may end up looking different from the bill, Danish companies, which are part of a group, should keep a watchful eye on this process in the future.

[Draft bill on amendment of the Tax Control Act and the Assessment Act of 23 June 2021]

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