On 7 October 2020, the Danish Ministry of Taxation reintroduced bill L48 on mandatory submission of transfer pricing documentation for groups; a bill that has been postponed due to the Corona pandemic. If the bill is adopted, it will become effective as of the income year commencing on 1 January 2021 or later.
Because of this bill, the so-called sixty-day rule will cease to apply. According to this former rule, a taxpayer was not required to submit transfer pricing documentation until requested to do so by the Danish Tax Agency. The future documentation requirement, however, implies the submission of one master file and a local file to the Danish tax authorities by each Danish company in connection with filing the annual tax return (oplysningsskemaet) and no later than 60 days after expiry of that filing deadline.
Rules in force
According to the current rules in force, transfer pricing documentation must be prepared on a regular basis and be completed by the time when a company files its tax return with the Danish Tax Agency. Yet currently there is no need to submit the transfer pricing documentation until the Danish Tax Agency requests such submission.
If the bill is adopted
Based on the bill recently tabled, transfer pricing documentation for the income year 2021 and later is to be submitted no later than 60 days after expiry of the deadline for filing the tax return. Consequently, the Danish Tax Agency will no longer have to ask for the submission of transfer pricing documentation and monitor the corporate compliance with the said 60-day rule.
Instead, the Danish Tax Agency will become entitled to make a discretionary assessment if a company does not prepare and submit its transfer pricing documentation in due course. The immediate effect is therefore a shift in the burden of proof from that of the Danish Tax Agency to that of the taxpayer, which then triggers an unfavourable position for the taxpayer.
If transfer pricing documentation is not submitted 60 days after expiry of the above deadline, the tax authorities may impose a fine of DKK 250,000 on each Danish company for every income year in question. However, this fine may be reduced to DKK 125,000 if the company subsequently submits satisfactory documentation to the tax authorities. If the company has also experienced a related rise in income, it will be charged 10% of such an increase.
Who is subject to the mandatory documentation requirements?
Groups are not subject to the documentation requirements if they have less than 250 employees and a balance sheet total not exceeding DKK 125 million or if the group turnover amounts to less than DKK 250 million. Yet, they must still be able to document that their transactions have been based on arm’s length principles.
Groups not exceeding these limits will, however, still be covered by the extended documentation requirement if they have been involved in controlled transactions with countries not having a double tax treaty with Denmark.
Please note that the written documentation must be of such a nature that it may constitute the basis for an assessment of whether the terms and prices have been fixed in accordance with the arm’s length principle and what could have been achieved if the transactions had been concluded between independent parties.
If you need our assistance in preparing your transfer pricing documentation or if you have any questions as to when and how these new rules may affect you, please do not hesitate to contact
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