31 March 2020, the Danish Minister for Taxation announced that the general tax return due date for FY2019 has been postponed due to the current situation. That means also a postponement of the finalization for the contemporaneous TP documentation for FY2019.
Companies with a tax return due date for the income year 2019 on the 31 March 2020 or later, all have their due date postponed to 1 September 2020. For financial years that follows the calendar year this means a two-month postponement from 30 June to 1 September 2020.
No application for postponement of the deadline shall be submitted.
The newly updated Danish transfer pricing rules require companies to prepare transfer pricing documentation contemporaneously. In any case, it must be ready no later than at the time for submission of the tax return. This means that the deadline for preparing the FY2019 transfer pricing documentation for most companies due to the extension of the deadline mentioned above is 1 September 2020.
For many companies the contemporaneous requirements mean that there is a need to change the process for preparation of transfer pricing documentation. The close connection between the preparation of the tax return and the contemporaneously prepared transfer pricing documentation means that the critical processes must be tailored to meet the compliance requirements.
Under the current legislation, once requested by the tax authorities, the taxpayer must submit the contemporaneously prepared transfer pricing documentation within 60 days. The Ministry of taxation has proposed changes to the legislation which means (if adopted) that companies would have to submit the transfer pricing documentation (see more below).
While the extension of the deadline for filing of the tax return and finalization of the transfer pricing documentation is welcomed in light of the current pandemic crisis, it should be observed that the extra time granted by the Danish Minister for Taxation, for many companies, falls in the same period as the industry summer vacation time.
It is therefore important that the process for preparing the transfer pricing documentation is initiated in due time to ensure compliance with the rules.
If the Danish Tax Authorities request the transfer pricing documentation from a taxpayer, and the taxpayer is not able to submit a compliant transfer pricing documentation, the Danish Tax Authorities can impose penalties, which as a starting point (in general) would be issued at EURO 34.000 per income year (annually DKK 250,000). It should be observed that penalties could be significantly higher.
Another important risk related to insufficient transfer pricing documentation including not meeting the requirement to prepare the documentation contemporaneously, is the risk of a discretionary assessment, i.e. non-compliance would potentially have an impact on the burden of proof.
The Danish Ministry of Taxation has 6 November 2019 proposed changes to the current legislation including two notable transfer pricing rule changes. If the proposed draft legislation is passed, the statutory transfer pricing documentation will have to be submitted shortly after the tax return has been submitted (no exemptions seems to apply) and the legal basis for discretionary assessments is formally tightened significantly in favor of the tax authorities. If the proposal is passed, the submission requirement will apply for income years starting 1 January 2020 or later, i.e. the first submission under the new legislation would be in august 2021 (submission of transfer pricing documentation for FY2020).
If you have any questions in relation to the above, please contact us. We assist many of our clients with reviewing, updating or preparing their transfer pricing documentation – both in Denmark and abroad.
For a more detailed description of the Danish transfer pricing documentation requirements, please see the attached PDF: