Transfer pricing documentation requirements eased for DK-DK transactions: New rules have been adopted

The new tighter Danish transfer pricing regulations which introduce a mandatory submission of a Master file and Local file to the Danish tax authorities within 60 days after the deadline for submission of the corporate income tax return have now been supplemented with a relaxation for pure Danish transactions. This relaxation has just been adopted.

The relaxation applies to transactions between entities that are solely subject to general Danish corporate taxation.

Transactions which are exempt from the transfer pricing documentation requirements must still be on arm’s length terms, cf. section 2 of the Danish Tax Assessment Act. In an audit, the Danish tax authorities will still be able to ask the company to provide the information which is necessary for the Danish tax authorities to evaluate whether the transactions have taken place on arm’s length terms. Additional documentation may for example be required if some group entities have generated entity-specific pre-joint taxation losses and if there may be an incentive for increasing the profit in the companies with entity-specific pre-joint taxation losses.

The relaxation for pure Danish transactions will be effective for income years starting on 1 January 2021 or later and will thus become effective at the same time as the submission requirement.

Penalties for late submission or non-timely prepared/non-compliant transfer pricing documentation may be up to DKK 250,000 per company per year plus 10 % of a potential income adjustment. In addition, the Danish tax authorities are entitled to make a discretionary assessment if the documentation is not submitted in in time.

A company must prepare a transfer pricing documentation in Denmark if it employs 250 or more employees or has both revenue exceeding DKK 250 million and a balance sheet sum above DKK 125 million. The parameters are measured at group level. It has just been specified in the amendment to the Act regarding the DK-DK relaxation that a benchmark study must be prepared if required by the transfer pricing method, i.e. the TNMM. Otherwise the transfer pricing documentation will be inadequate.

If you have any questions or would like to find out more about the changes in the Danish transfer pricing regulations, please contact us.