More about TP documentation

24 July 2019

As a consequence of defeat in the TP case against Microsoft, the Danish Tax Agency will allow resumption of tax assessments where income was estimated due to no available TP documentation at the tax return filing deadline.

In February 2019, the Supreme Court ruled that the tax authorities could not make an estimate of the taxable income of Microsoft's Danish subsidiary, simply because the company's TP documentation was not available in its entirety at the tax return filing deadline.

Conversely, this was the position of the Danish Tax Agency for several years.

The Supreme Court stated that it was sufficient that the documentation was available at the time, when the Danish Tax Agency assessed the taxable income of the company.

Read more about the ruling of the Supreme Court in the February 2019 issue of tax:watch.

As a consequence of the ruling, the Danish Tax Agency will issue guidelines for resumption of tax assessments in cases, where the Danish Tax Agency has estimated the taxable income, simply because the required TP documentation was not available at the tax return filing deadline.

At the time of writing, the Danish Tax Agency has yet to publish the guidelines. However, a hearing of draft guidelines has recently been completed.

According to the draft, the possibility of resumption applies to the income year 2008 and up to the time, when the rules were amended.

For companies with a financial year following the calendar year, this implies up to and including the income year 2017, as for these companies, the new rules take effect from the income year 2018.


Unchanged practice concerning fines

When the Danish Tax Agency approaches a company and asks for documentation concerning controlled transactions, a 60-day deadline applies for the company to provide the requested TP documentation.

If the deadline is not respected, the company may be fined – regardless of whether the taxable income of the company may later be subject to estimation by the Danish tax authorities.

Basically, the fine amounts to DKK 250,000 per year. This applies regardless of whether the Danish Tax Agency collects TP documentation for several years in a single letter, which is often the case.

The fine is reduced to half – i.e. DKK 125,000 per. year – if the documentation is later submitted.

However, the fine can also be increased by an amount equal to 10 pct. of any increase of the taxable income applied by the Danish Tax Agency.

The Supreme Court ruling in the case against Microsoft does not affect fines.

This was established in a recent ruling by the district court, where a company was sentenced to pay a fine of DKK 500,000 plus legal costs for failing to submit its TP documentation on time - allegedly as a result of a misunderstanding between the company and its parent company, concerning which company was responsible for the country-specific TP documentation.

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.