Mandatory reporting of transfer pricing documents

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A number of companies in Denmark are subjected to the law concerning the annual mandatory reporting of transfer pricing documents including limited companies and other registered company entities liable for corporate tax.

The legislation was put into effect in 2021.

In this article, we will dive deeper into the legislation and how it may affect the way companies conduct business in Denmark.

Companies subjected to the requirements

The documentation requirements are applicable for all corporate tax liable entities that takes part in a transaction with a related company. This could possibly be between companies in the same group.

However, the Danish entity of your company could be exempted from the documentation requirements, if the group it has less than 250 employees and further, less than either

• 125 million DKK in total assets
• or less than: 250 million DKK in total revenue per year.

There are a few exceptions to this. The most important is if the entity engages in transactions with a related entity established in a country without a Double taxation agreement regulating transfer pricing the requirements to submit documents still applies.

What is transfer pricing (TP)?

Related companies often engages in transactions with each other. These transactions must be executed as if they are done with independent companies. This means that the prices contract terms and other aspects of the transaction must be set as if negotiated between independent parties.

Groups have to obtain information on prices and contract terms from transactions outside their own organization as a main rule.

This regulation is also referred to as the arm’s length principle.

Content of the transfer pricing documents

The transfer pricing documents consist of two files. The relevant entities, subjected to the requirements, must submit a master file covering the transfer pricing policies and other information for the entire group and a local file covering the Danish entity including an assessment that states if the arm’s length principle has been complied with during the tax year. The files must also include appendices to proof that transfer pricing policies are adopted in practice.

Transfer pricing memorandums or other transfer pricing reports are not sufficient to fulfill the document requirements.

Deadlines

The deadline for submitting the transfer pricing documents is the 60 days following the deadline for submitting the corporate tax return. For entities using the calendar year as the tax year the deadline is August 29th.

It is possible to apply and obtain an extension of the deadline for submitting the master file but the authorities have been reluctant to allow an extension on the deadline for the local file.

Penalties

The penalty for not submitting the transfer pricing documents before deadline is a fine starting at 250,000 DKK for every year the documents have been submitted late. The fine can be reduced to 125,000 DKK if the documents are submitted after the deadline and they are approved as sufficient. The Danish courts have not confirmed the level of the fines yet within the framework of the new legislation.

Contact

If you are in need of more information or have any questions or concerns, you are welcome to contact us.