The Danish tax authorities were defeated in a major TP case

25 November 2016

The Danish tax authorities are often eager to point out the very large raises of taxable income implemented in transfer pricing cases. However, not all of them are upheld, and the National Tax Tribunal has just reversed a decision.

The case concerned a large consulting business with offices in many countries including Denmark. The business was characterised by using employees from offices in other countries to carry out consultancy tasks. Hence, the case concerned that the Danish company had hired employees of affiliates abroad at costs that were deemed too high by the Danish tax authorities.

However, this was rejected by the National Tax Tribunal, which in its ruling stated that the company had presented a great amount of data to support the transfer prices. Therefore, it was up to the Danish tax authorities to substantiate that the company did not comply with the arm's length principle. As the tax authorities had failed to do so, there was no basis for the implemented raises of taxable income.

The management of transfer pricing cases

Danish companies forming part of a group is required to prepare transfer pricing documentation if the group globally has more than 250 employees and a balance sheet total exceeding 125 million DKK or a turnover of over 250 million DKK. A Danish company may therefore be covered by the rules, even if the activity in Denmark is minimal.

Not everyone is aware. Hence, the Danish tax authorities are currently mailing letters to companies that they believe are covered by the information or documentation requirements but have not complied with the rules.

The preparation of transfer pricing documentation is a demanding task. A work load that the Danish tax authorities are not always respectful of. It is not uncommon for the Danish tax authorities to override documentation that the company has devoted much effort in preparing with a stroke of the pen.

Companies selected for inspection with regard to their transfer pricing conditions are often surprised at the very hard line adopted by the tax authorities in these cases. To counter the views of the tax authorities, preparation of further documentation is often required which many companies balk against. In our experience, however, there is no alternative. The outcome of the above-mentioned case rested entirely on the huge resources that were sacrificed to show that things were 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.