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Denmark: Landmark transfer pricing decision from Supreme Court

Denmark: Landmark transfer pricing decision

The Supreme Court of Denmark (Højesteret) issued a decision for the taxpayer in a landmark transfer pricing case, and affirmed a 2018 decision of the High Court (Østre Landsret).


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This is a case first impression from the Supreme Court in addressing several substantial transfer pricing matters under the Danish transfer pricing rules.

The case identifying information is: Sag 78/2018 (31 January 2019). Read the decision (Danish) 

KPMG observation

The taxpayer-favorable decision does not mean that Danish companies can relax when it comes to their transfer pricing documentation. The case is the first transfer pricing decision from the Supreme Court since the introduction of the transfer pricing legislation in 1998. Since then, there have been legislative changes that apply for 2018 and onwards—changes that require multinational corporations operating in Denmark to prepare their transfer pricing documentation annually, and by the filing date of their tax returns.


The issues in the case before the Supreme Court was whether the taxpayer (the Danish company of a U.S. based multinational corporate group) had received the proper amount of remuneration for the sales and marketing activities as performed by it for the corporate group.

During the judicial proceedings, certain procedural allegations were raised, including a question as to whether the taxpayer had timely prepared sufficient and adequate documentation for its intercompany transactions.

Supreme Court’s decision

The Supreme Court held that the Danish tax agency was not authorized to make a discretionary assessment of income based on the taxpayer’s transfer pricing documentation.

The Supreme Court established that as a prerequisite for the tax agency to make transfer pricing discretionary assessments, there must be such significant deficiencies in the transfer pricing documentation that it did not actually give the tax authorities a sufficient basis for assessing whether the arm's length principle has been complied with—or not. As such, there was a question whether the documentation could be equated with a lack of documentation. In this case, the Supreme Court concluded that the taxpayer’s Danish transfer pricing documentation did not reflect such deficiencies.

The Supreme Court also rejected the tax agency’s allegations that the taxpayer did not receive an arm's length remuneration for its marketing and sales activities.

Intervening legislative changes

Despite the taxpayer-favorable decision in this case, companies still need to pay close attention to the transfer pricing rules because, during the time of what turned out to be lengthy court proceedings, there was an intervening legislative change that applies for the financial year 2018 and onwards.

The new rules require written transfer pricing documentation must be prepared contemporaneously, on an ongoing basis (annually), and must be completed no later than the date when the tax return is due to be filed. This new measure may affect all multinational companies operating in Denmark.

Previously, many companies were reluctant to prepare their complete Danish transfer pricing documentation annually or before the tax return’s deadline. However, effective from the financial year 2018, the transfer pricing documentation must be fully prepared before the deadline for the filing of the tax return.

Companies still face risk, high penalties

If the transfer pricing documentation is insufficient or not timely filed, the taxpayer risks a penalty assessment as well as a discretionary assessment. At a minimum, the penalty is DKK 250,000 for each year that the documentation is insufficient or fails to satisfy the rules. An additional penalty of up to 10% of the increased amount of assessed income may be imposed.

KPMG observation

Tax professionals with the KPMG member firm in Denmark, KPMG Acor Tax (who assisted the taxpayer in the proceedings before the Supreme Court), have made the following observations:

  • The Danish Supreme Court has now established that before the Danish tax agency can issue a discretionary assessment, the transfer pricing documentation must have significant deficiencies. If the documentation does not actually provide the tax authorities a sufficient basis for determining or assessing whether the arm's length principle has been complied with, only then will such documentation be equated with a lack of documentation.
  • Over the past years, there were taxable income discretionary assessments made against taxpayers following a transfer pricing tax audit. These discretionary assessments were based on very different principles. Tax professionals now believe that going forward, the Danish tax agency will be much more cautious about making discretionary assessments in transfer pricing audits. Furthermore, the high court’s decision is being viewed as already affecting a number of the cases currently pending both before the courts and the National Tax Tribunal.
  • The revised transfer pricing rules (2018) will increase the administrative burden for many Danish companies. Previously, certain taxpayers waited to prepare their documentation only after receiving a request from the Danish tax agency for the transfer pricing documentation. With the new rules, however, it is no longer sufficient for taxpayers to have the information or data for the documentation ready by the tax return’s filing deadline—the documentation itself must be completed.


For more information, contact a KPMG transfer pricing professional in Denmark:

Henrik Lund | +45 5374 7066 |

Johnny Bøgebjerg | +45 5374 7090 |

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