Late submission of TP documentation will result in large fines

20 December 2018

Anders Kiærskou, Manager, Tax |

The tax authorities seem to be more successful in winning legal proceedings concerning untimely submission of TP documentation than cases concerning adjustment of intra-group prices. A new ruling confirms the high level of fines.

In 2018, the Danish tax authorities suffered defeat in several major cases where they attempted to override intra-group settlement prices and, consequently, increased the taxable income of Danish group entities.

While both the National Tax Tribunal and the courts have been reluctant to back up the Danish Tax Agency in cases of income adjustments, the situation is somewhat different in cases of fines for lack of or untimely submission of TP documentation.

According to the rules, a fixed basic fine amounting to DKK 250,000 per year is applied if the taxpayer is unable, within 60 days, to submit sufficient documentation for intra-group prices. However, the fine is reduced to half if the documentation is submitted subsequently, but conversely it can also be increased by 10 pct. of any income increase that the tax authorities decide.

A new ruling confirms the high level of fines. The case concerned a Danish subsidiary of a multinational group that conducted business-to-business sales of hair care products.

The Danish company received a letter from the Danish Tax Agency on 20 December 2016 requesting - within 60 days - to submit documentation for the company's controlled transactions for the years 2011 - 2015.

Due to an internal communication error, the letter was not forwarded to the relevant employee. Consequently, the Danish Tax Agency did not receive the requested TP documentation until 7 April 2017 – approx. 6 weeks late.

Following a review of the TP documentation, the Danish Tax Agency announced that the intra-group settlement prices were approved.

Nevertheless, the Danish Tax Agency issued a fine of DKK 625,000 for late submission of the TP documentation, equivalent to DKK 125,000 per year, according to the basic rate.

This fine was sustained by the district court on the grounds that, although the Danish Tax Agency had requested TP documentation for 5 years in a single letter, it could not be considered as just one violation of the rules.

The ruling seems harsh. Last year, two rulings were made on the same issue and in both cases, a reduction of the basic fine was granted.

In one case, the High Court ruled that a fine calculated based on the basic rate and number of years would result in an excessively high penalty. In this light, there could be grounds for an appeal.

Regardless of the size of the fine, it should be noted that fines are applied by the Danish Tax Agency even in cases of small violations of the deadline and regardless of whether intra-group prices are in order.

The above article is taken from tax:watch, our electronic English newsletter on Danish Tax and VAT matters. tax:watch is issued on the last Friday of each month and is free of charge. Please sign up here.