The rules on TP documentation are being tightened

27 September 2019

In the future, multinational enterprises must submit their TP documentation at the same time as reporting their income. If they fail to do so, the Danish Tax Agency can both issue a fine and estimate the taxable income.

Transfer pricing has received a lot of political attention during the past years, and it has broadly been agreed that the tax authorities should have extensive powers in the fight against multinational enterprises’ intra-group transactions not adhering to the “arm’s length”-principle.

Consequently, missing or insufficient TP documentation may be sanctioned with a fine, and the tax authorities may estimate the taxable income.

Generally, large fines are imposed for late submission of TP documentation, even though there is no basis for changing the taxable income.

The Ministry of Taxation has recently submitted a draft bill in consultation.

According to the draft bill, companies will have to submit their TP documentation together with the reporting of taxable income.

Hence, the current rule allowing companies to submit the TP documentation within 60 days from the tax authorities requesting it, will be abolished.

The draft bill clearly states that the new rules will reduce the requirements for the Danish tax authorities’ documentation concerning the basis for estimating taxable income.

In other words, it will be harder for companies to achieve a successful outcome in TP cases, if they prepare their TP documentation too late, and thus themselves cause the tax authorities to estimate the taxable income.

According to the draft bill, the new rules are scheduled to take effect for income years beginning on or after 1 January 2020.

Thus, for companies with financial years following the calendar year, documentation for the financial year 2020 must be submitted by 30 June 2021.

For companies with a financial year different from the calendar year, the new rules are scheduled to take effect from the financial year 2020/21.

We consider it likely that there will be adequate support for the draft bill to be adopted, and companies may well start to adjust to the new rules.

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.