Denmark: Changes to transfer pricing documentation requirements

Legislation further supplements the transfer pricing documentation rules.

Legislation further supplements the transfer pricing documentation rules.

The Danish transfer pricing documentation rules were recently updated to include a mandatory filing requirement for the transfer pricing documentation required for 2021. Under the updated rules, the transfer pricing documentation must be submitted to the Danish tax agency within 60 days of the due date for filing the tax return.

Legislation enacted on 25 November 2021 further supplements the transfer pricing documentation rules. The new measures provide:

  • An exemption from the transfer pricing documentation requirement for those taxpayers with purely domestic controlled transactions (that is, DK-to-DK transactions). Taxpayers with purely or solely DK-to-DK transactions will no longer be required to file transfer pricing documentation.
  • Database searches related to benchmark studies will be required to a much greater degree than before. 

Transfer pricing documentation exemption for purely domestic controlled transactions

The transfer pricing documentation exemption applies to transactions between domestic, affiliated companies that are generally covered by the Danish corporate taxation system.

Controlled transactions exempt from the transfer pricing documentation requirement will, however, still be subject to the arm’s length requirement. During a tax audit, the Danish tax agency can still request that a company provide documentation necessary for assessing whether the transactions are at arm’s length.

The exemption of purely Danish transactions applies to financial years beginning on or after 1 January 2021. Thus, this measure is simultaneously effective with the rule described above, relating to the filing requirement for the transfer pricing documentation. For taxpayers with a financial reporting period that is the calendar year, the exemption is available for fiscal year (FY) 2021.

The new law also specifies that a benchmark study—in most cases, a database search—must be prepared and included as part of the statutory transfer pricing documentation if the transfer pricing method applied by the taxpayer makes such information relevant (for instance, if the TNMM is applied). Benchmark studies must be filed together with the Local file for FY 2022 and later. Consequently, for taxpayers with a financial reporting period that is the calendar year, this information is required for FY 2022. 

Group level

A company must prepare and file transfer pricing documentation in Denmark if it is part of a group with:

  • 250 employees or more, or
  • Revenue exceeding DKK 250 million (approximately U.S. $38 million) and a balance sheet total exceeding DKK 125 million (approximately U.S. $19 million)

The thresholds are measured on a group level. Taxpayers not part of a group but still meeting these criteria could be subject to limited documentation requirements if certain criteria are met (such as when the taxpayer has business activities with affiliated companies in countries with whom Denmark does not have an income tax treaty).

KPMG observation

The transfer pricing documentation requirements, including the associated filing requirements, apply to most international groups with operations in Denmark. Note that the thresholds are measured on a group level.

Penalty for noncompliance

Penalties for late submissions, or insufficient or overdue preparation of transfer pricing documentation could amount to DKK 250,000 per company, per year plus 10% of a potential income adjustment.

In addition, the Danish tax agency can make a discretionary assessment if the documentation does not meet the formal requirements or has not been timely submitted.

KPMG observation

The mandatory filing requirements combined with the penalty regime substantially tightened the transfer pricing rules in Denmark. Taxpayers need to review their Danish transfer pricing documentation for 2020 to determine that their records satisfy the Danish requirements so as to comply with the mandatory filing requirement for 2021.


For more information, contact a KPMG tax professional in Denmark:

Henrik Lund | henrik.lund@kpmg.com

Simon Schaadt | simon.schaadt@kpmg.com

Holger Haugstrup | holger.haugstrup@kpmg.com

Peder Reuther | peder.reuther@kpmg.com

 

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