On 25 November 2021, a new legislation was adopted in Denmark which means that taxpayers in Denmark are exempted from the requirement to submit documentation for domestic intra-group transactions. The new rules apply to financial years beginning on or after 1 January 2021.
Last year Denmark introduced a legislation providing that transfer pricing documentation must be submitted to the tax agency no later than 60 days after the deadline for filing the tax return. This included both the Master and Local file.
When the legislation regarding the mandatory submission of documentation was introduced, questions were raised as to whether domestic transactions – which previously should be included in the transfer pricing documentation in Denmark – could be exempted from the new rules to lighten the administrational burden for companies.
The impact of the new rules
The new regulation means that taxpayers in Denmark with purely domestic intra-group transactions (DK <–> DK) is not required to submit the transfer pricing documentation. It should however be noted that these transactions must still comply with the arm’s length principle. The Danish tax authority may also, in an audit, request that the company provides documentation in order to assess whether the transactions are arm’s length or not.
In addition to the changes above, the new rules also imply that benchmarking studies will be required to a greater extent than before. Benchmarking studies should be prepared if it can provide relevant information for the applied transfer pricing method. For example, if the transactional net margin method (TNMM) is used, a benchmark study can provide relevant information on arm’s length net margins.
If a benchmark study has been prepared, it shall be attached and submitted together with the documentation. Penalties can be levied if the benchmark studies are missing.
The mandatory submission of documentation to the tax agency has noticeable tightened the transfer pricing rules in Denmark, and the possibility of exempting companies with only domestic transactions thus meant a relief for many groups. That said, the new rules do not mean that domestic transactions can be priced without regard to the arm’s length principle. Exempt companies must still analyze which transfer pricing method is the most appropriate in their pricing and be prepared to substantiate that method in an audit.
If you need help with your documentation or have any questions regarding the transfer pricing rules in Denmark, you are welcome to contact us.