Companies with a fiscal year corresponding to the calendar year are from the fiscal year 2018 covered by new rules for when their transfer pricing documentation must be available in its completed form.
In many of the recent years significant transfer pricing cases, it has been discussed when the transfer pricing documentation, which the companies are obligated by law to prepare, must be available in a completed form.
This issue was decided to the advantage of the companies when the Danish Supreme Court ruled in a transfer pricing case concerning Microsoft.
The Supreme Court stated that for the income years the case concerned, the documentation was not required to be available at the deadline for filing the tax return.
However, the far-reaching significance of the ruling by the Supreme Court is questionable, as the Danish parliament adopted an amended Tax Control Act at the end of 2017.
It is now clear that from 1 January 2019, the documentation must be completed no later than the deadline for filing the tax return.
For companies with a fiscal year corresponding to the calendar year, the new rules have effect from the fiscal year 2018. Hence, for those companies, the documentation must be available in a completed form on 30 June 2019.
The companies still have a deadline of 60 days to submit the documentation upon request by the Danish Tax Agency.
However, it is allegedly the position of the Danish Tax Agency that the 60-day deadline for submitting the transfer pricing documentation cannot be used to prepare the documentation.
The obligation to prepare and store transfer pricing documentation applies to all companies that have controlled transactions with parent companies, sister companies and subsidiaries.
However, companies with less than 250 employees on a consolidated basis, which either have a total balance of less than DKK 125 million or an annual turnover of less than DKK 250 million, shall only prepare documentation for controlled transactions with related parties in non-EU/EEA countries with which Denmark has not concluded a double tax treaty.
Although the rules primarily apply to larger companies, many small Danish companies are also included as they are part of larger international groups.
The documentation must include a joint documentation for the entire group (Master File) and a country-specific documentation for each company with a description and analysis of the controlled transactions (Local File).
Lack of transfer pricing documentation puts the company at risk of being fined, and the Danish Tax Agency can estimate the company's income.
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.