Country-by-country reporting and three-tiered TP documentation
26 February 2016
Denmark has introduced country-by-country reporting and the three-tiered documentation approach as part of the transfer pricing documentation requirements.
The county-by-country (CbC) report must be prepared by the following companies if the group has a consolidated turn-over of at least DKK 5.6 billion (approx. EUR 750 million) in the previous year:
- An ultimate parent company, tax resident in Denmark
- A Danish tax resident company where the ultimate parent company is not Danish and one of the following criteria is met:
- The ultimate parent company is not obligated to file a CbC report.
- There is no automatic exchange of CbC reports between Denmark and the country where the ultimate parent company is resident.
- There are other measures preventing the exchange and this has been announced to the company.
A Danish subsidiary may be exempted from filing a CbC report if certain conditions are met whereby the Danish tax authorities have access to the CbC report.
The CbC report must be prepared for fiscal years starting on 1 January 2016 or later.
The Danish tax authorities must be notified within the end of the fiscal year if filing of a CbC report is required and – if the ultimate parent company is not Danish and more than one company meets the requirements to file a CbC report – which company will file the report.
Submission of the CbC report to the Danish tax authorities must take place within 12 months after the end of the income year subject to the CbC report. The filing requirement differs from the ordinary transfer pricing documentation, which only has to be filed upon request from the Danish tax authorities.
The specific content of the CbC report will be enacted in an executive order. The requirements are expected to correspond to the standard recommended by the OECD. Non-compliance will be subject to the existing transfer pricing sanctions and penalties.
Three-tiered transfer pricing documentation
Previously, no specific norm has been applied in Denmark for transfer pricing documentation - except content requirements. However, with the introduction of CbC reporting, it will become mandatory to use the three-tiered transfer pricing documentation approach as recommended by OECD.
The three-tiered documentation consists of:
- A master file; containing general information about the group
- A local file; containing the relevant transactions for the local entity
- The CbC report
Groups required to prepare transfer pricing documentation for Denmark but not required to prepare a CbC report will have to prepare a master file and relevant local files.
The three-tiered approach should be implemented by an amendment to the current Danish transfer pricing executive 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.