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Denmark: Transfer pricing documentation to be filed with tax return (draft bill)

Denmark: Transfer pricing documentation

The Danish Ministry of Taxation on 13 September 2019 announced a draft bill that would require taxpayers to file the statutory transfer pricing documentation package along with their annual tax returns. The new rule is proposed to be effective for income years beginning on or after 1 January 2020.


Related content

The draft bill was announced along with a proposal to implement the EU Anti-Tax Avoidance Directive, including new controlled foreign corporation (CFC) rules, a new permanent establishment definition, and treatment of final losses as well as other changes.

Summary of transfer pricing draft bill

The draft legislation reflects two substantial changes from the rules under the current transfer pricing law.

  • The statutory transfer pricing documentation would have to be submitted to the tax agency along with the tax return (i.e., no later than the deadline or due date for filing the tax return).
  • If the taxpayers fails to submit the required documentation by the return’s deadline, the tax agency would be entitled to “freely estimate” the taxable income (i.e., a discretionary assessment).

The transfer pricing documentation content requirements would continue to follow the OECD Transfer Pricing Guidelines. As such, the full documentation would have to be submitted by the return’s deadline, and this would include the Master file for the taxpayer group as a whole.

With the new draft bill, not only would taxpayers be obliged to prepare the transfer pricing documentation on a contemporaneous basis, but taxpayers would also be required to submit the documentation to the tax agency no later than the due date for filing the tax return. The consequences for failing to submit the transfer pricing documentation timely would include potential penalties (“Tax Control Act” § 84, 5) and potentially a discretionary assessment (Tax Control Act § 46).

In addition to these changes, the draft bill would imply a modification to the definition of controlling interest. 


Until March 2018, there was uncertainty with regard to whether the transfer pricing documentation needed to be prepared contemporaneously (i.e., no later than the deadline of the tax return).

A March 2018 decision of the Danish court (the eastern high court) concluded in favor of contemporaneous documentation. Further, with the implementation of the new Tax Control Act (legislation no. 1535 of 19 December 2017), the requirement for contemporaneous documentation was even further clarified for income years beginning 2019 and later because the requirement for contemporaneous documentation was stipulated directly in a provision of the legislation (§ 39,1).

Until January 2019, there was uncertainty regarding the legal basis to assess taxable income on a discretionary basis. A landmark case from the Danish Supreme Court clarified that the evaluation of a taxpayer’s intercompany transactions must be based on all relevant information provided by the taxpayer, including information provided and prepared after the deadline of the tax return.

The new proposal in the September 2019 draft bill aims to “clarify” that the Supreme Court decision does not affect income years beginning 2019 and onwards.

Discretionary assessment

When the tax agency is authorized to make a discretionary assessment, the taxpayer—according to the practice of the courts—has the burden of proof and must provide evidence that the tax agency’s estimate is obviously unreasonable or was formed on an incorrect basis.

The draft bill proposes that the tax agency would be allowed to perform a discretionary assessment if the transfer pricing documentation requirements are not fulfilled at the time of when the tax return is filed. This implies that the tax agency could perform a discretionary assessment, even though the taxpayer subsequently provides additional documentation. 

KPMG observation

This proposal would be a substantial change, given that the tax agency—under current law—is only allowed to make a discretionary assessment if the documentation is non-compliant or not submitted at the time of the tax agency's final assessment. However, the tax agency would still need to take into account information provided prior to the assessment, and the discretionary assessment must have to be in accordance with the arm's length principle (Tax Assessment Act § 2, 1); in other words, if prices and conditions were applied by the taxpayer is in accordance with the arm's length principle, a discretionary assessment would not be justified.

Finally, the tax agency would still be required to approach the taxpayer prior to making any discretionary assessment to establish the facts and circumstances of the case so as to substantiate the discretionary assessment in the best possible way. If the tax agency were to decide to adjust the reported taxable income, even though the taxpayer subsequently provides additional information, the income adjustment would be de facto a discretionary assessment. This could (as explained above) have great importance with regard to the evidence of the case, burden of proof, etc. 

KPMG observation

Tax professionals with KPMG Acor Tax have observed that if the draft legislation as proposed were to be enacted, the tax agency would be allowed to perform discretionary assessments even though the taxpayer has prepared and submitted supplementary information and documentation. This means that the nature of discretionary assessments would change, and some believe this would have more of a flavor of a criminal act or penalty. This proposal also could significantly affect legal certainty. The consequences of failing to submit the transfer pricing documentation in due time would provide a strong incentive for taxpayers to prepare and timely submit compliant transfer pricing documentation.

Lastly, it is worth noting that many other jurisdictions do not have a documentation submission requirement, and others have different deadlines for finalizing the transfer pricing documentation. Such variations in compliance rules and deadlines could cause challenges—especially in situations when the taxpayer group’s Master file is prepared in a different jurisdiction and in situations when the relevant group entities have different financial years.

For more information, contact a professional with KPMG’s Global Transfer Pricing Services practice in Denmark:

Simon Schaadt | +45 5374 7044 |

Henrik Lund | +45 5374 7066 |

Johnny Bøgebjerg | +45 5374 7090 |

Sebastian Næs Hallund Rasmussen | +45 5077 0947 |

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