Since the income year 2021, companies that were above the documentation threshold have had to submit a Master File and Local File to the Danish tax authorities within 60 days of the deadline for submitting the corporate tax return.
A new draft proposal increases the threshold for being covered by the documentation requirements, so that it reflects the limits for accounting class C medium-sized. In addition to increasing the limits, an objective de minimis limit of DKK 5 million of total controlled transactions covered by the TP documentation obligation (i.e. as a main rule, foreign controlled transactions) is also introduced, so that if the entity has such limited transactions, it will be exempt from the documentation obligation.
The exemption will not, however, include transactions relating to intangible assets, or transactions with group-related parties that are domiciled or located in a foreign state that does not exchange tax information with Denmark.
It is still a requirement that you comply with the arm's length principle and can demonstrate/ document this if the Danish Tax Agency carries out a transfer pricing audit, even if you are exempt from the documentation requirement. The new rules are proposed to enter into force for income years beginning on or after 1 January 2025 (the accounting limits are proposed to be relaxed with effect for the income year 2025).
Further, the draft proposal removes the obligation to document dividends and capital contributions.
According to the draft proposal, a company must prepare transfer pricing documentation in Denmark if it has 250 or more employees, or if its turnover exceeds DKK 391 million (previously 250 million) and its balance sheet total exceeds DKK 195 million (previously 125 million). The thresholds are measured at group level.
Penalties for late submission or failure to timely prepare/inadequate documentation are a fine of up to DKK 250,000 per company per year and 10 percent of a potential income adjustment. In addition, there is a risk of a reversal of the burden of proof in tax cases concerning transfer pricing if the documentation is not submitted in time.
If you have any questions or would like to know more about the changes to the Danish transfer pricing rules, you are welcome to contact us.
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