Transfer Pricing rules in Denmark for 2024
Transfer Pricing rules in Denmark have changed many times over the last couple of years. It is now mandatory for larger companies in Denmark to submit Transfer Pricing documentation each year. It was required to prepare the Transfer Pricing documentation in the past, but it was only submitted within 60 days upon request from the Danish Tax Agency. Transfer Pricing should now always be submitted 60 days after the Corporate Income Tax return deadline when exceeding certain thresholds.
Transfer Pricing rules in Denmark for 2024
This blog will outline the current Transfer Pricing rules in 2024 for Danish limited liability companies and majority shareholders, who are physical persons and tax residents of Denmark.
Transfer Pricing regulates the price for controlled transactions between a buyer and a seller controlled by the same owner or physical person.
Transfer Pricing rules in Denmark have changed many times over the last couple of years.
It is mandatory for larger companies in Denmark to submit Transfer Pricing documentation each year when certain thresholds are exceeded.
Note the difference between being required to prepare the Transfer Pricing documentation and being required to submit the Transfer Pricing documentation.
It has been required to prepare the Transfer Pricing documentation in the past (before 2021), but it was only to be submitted within 60 days upon request from the Danish Tax Agency.
Transfer Pricing documentation should now always be submitted 60 days after the Corporate Income Tax return deadline when exceeding certain thresholds.
Also, it is worth noticing that it is no longer required to prepare Transfer Pricing documentation for controlled transactions between two Danish companies or between a majority shareholder, which is a tax resident of Denmark and a controlled Danish company.
Over the last couple of years, the Corporate Income Tax return for companies and the Personal Income Tax return for majority shareholders who are tax residents of Denmark have been extended to include a detailed questionnaire relating to controlled transactions.
Why is Transfer Pricing documentation relevant?
When discussing Transfer Pricing rules in Denmark for 2024, it is important to understand why the rules were put into place.
Traditionally, companies have used intercompany pricing to reduce the tax burden.
Companies would often charge a higher price to other controlled companies in high-tax countries (which reduced the profit in the high-taxed country) while charging a lower price for controlled companies in low-tax countries (which increased the profit in the low-taxed country).
The Danish Tax Agency has dramatically increased Transfer Pricing requirements for controlled transactions to combat this.
In A Hurry?
Transfer Pricing (also called “TP” in short) refers to intercompany pricing when providing f.ex. products, services, loans or similar between companies controlled by the same owner or between a company and a majority shareholder, which is a physical person.
A company or a majority shareholder has control over a company when owning more than 50% of the shares in the other company.
The fine in Denmark for not submitting Transfer Pricing documentation on time is 250.000 DKK per year per company which can often be lowered to 125.000 DKK per year per company if Transfer Pricing documentation is later submitted.
Another consequence for not submitting Transfer Pricing documentation on time, in addition to the fine, is that the Danish Tax Agency can estimate the Transfer Pricing and not respect the pricing you have used for the controlled transactions.
A penalty of 10% of any increase in income due to changes in Transfer Pricing should be expected in addition to the fine.
The deadline to submit Transfer Pricing documentation is 60 days after the deadline for submitting the Corporate Income Tax return.
The Corporate Income Tax return for 2023 (when having the calendar year as the fiscal year) is due 30.6.2024, so the Transfer Pricing documentation is due 29.8.2024.
What is Transfer Pricing?
Transfer Pricing rules in Denmark for 2024 follows a set of OECD guidelines which helps to determine the price a company should charge another controlled company for products, services, loans or similar.
A company is controlled when another company or physical person owns more than 50% of the shares in the company.
A transaction between a parent company and an operating company is controlled.
A transaction between a majority shareholder and his/her company is also controlled.
Transfer Pricing allows a company to establish pricing for products and services (and other transactions) between the company and a majority shareholder or controlled subsidiaries.
Transfer Pricing is based on what price an uncontrolled transaction would be valued at.
Who should prepare Transfer Pricing documentation in Denmark?
All Danish companies (tax residents of Denmark) that have controlled transactions with a foreign company or majority shareholder (who is not a tax resident of Denmark) should prepare Transfer Pricing documentation for the controlled transactions.
Also, a majority shareholder who is a physical person (and a tax resident of Denmark) who has controlled transactions with a foreign company (who is not a tax resident of Denmark) should prepare Transfer Pricing documentation for the controlled transactions.
Even though it is required to prepare Transfer Pricing documentation, it does not always need to be submitted to the Danish Tax Agency.
In the past, it was also required to prepare Transfer Pricing documentation for controlled transactions between two Danish companies, but this rule has been cancelled since 2021.
Who should submit Transfer Pricing documentation each year to the Danish Tax Agency?
There are two thresholds to observe when having transactions between two controlled companies or the majority shareholder and a controlled company:
If the controlled companies have 250 employees or more.
AND
If the group of controlled companies has a balance sum of 125 million DKK or more OR a revenue of 250 million DKK or more.
If these thresholds are exceeded, the controlled companies and the majority shareholder, which are tax residents of Denmark, and who have had controlled transactions, must submit Transfer Pricing documentation latest 60 days after the Corporate or Personal Income Tax return deadline.
These thresholds are global and consolidated for the whole organisation.
So not just for the local Danish company.
You should include the parent company and all subsidiaries controlled globally when determining if you exceed the thresholds.
If you are below the thresholds, you do not need to submit the Transfer Pricing documentation, but you still need to prepare the Transfer Pricing documentation. Upon request from the Danish Tax Agency, you will have 60 days to submit the Transfer Pricing documentation in this case.
Please note that if your company has had controlled transactions with a company in a country that does not have a double taxation treaty with Denmark and is outside the EU, your company must always submit Transfer Pricing documentation regardless of the abovementioned thresholds.
What should the Transfer Pricing documentation include?
The Transfer Pricing documentation should contain a Master file (which includes information about the whole organisation) and a Local file (which only provides information about the local entity).
Furthermore, it is essential to include an analysis called a “benchmark”.
A benchmark is a mandatory analysis which substantiates that the controlled transactions are carried out following the arm’s length principle.
Usually, the benchmark is made by comparing the simplest of all the entities involved in the controlled transactions with other comparable (non-controlled) companies, using an approach called the Transactional Net Margin-Method (TNMM) and/or Comparable Uncontrolled Pricing (CUP) data.
How does a company submit Transfer Pricing documentation?
When a company submits the Corporate Income Tax return, it must declare information regarding controlled transactions in the fiscal year.
Depending on your situation, should you be required to submit the Transfer Pricing documentation, a new Transfer Pricing menu will appear on the left side of the Danish Tax Agency’s website after submitting the Corporate Income Tax return.
In this Transfer Pricing menu, you can upload your Master file and Local file together with relevant documents.
Controlled transactions with entities in countries without a double taxation treaty
If you have controlled transactions with entities in countries without a double taxation treaty with Denmark, which is located outside of the EU, you always need to submit Transfer Pricing documentation even if you are below the thresholds mentioned before.
Shall a majority shareholder, which is a physical person, submit Transfer Pricing documentation?
Transfer Pricing rules in Denmark for 2024 is also relevant for majority shareholders.
If you are a majority shareholder and a tax resident of Denmark and you have controlled transactions which exceed the thresholds mentioned before or with a controlled company located in a country without a double taxation treaty with Denmark, which is outside of the EU, then you also need to submit Transfer Pricing documentation for your controlled transactions as a separate Local file and a Master file.
In this case, you must mail the documentation to the Danish Tax Agency since you cannot upload Transfer Pricing documents on SKAT Borger.
Transactions between the majority shareholder (a tax resident of Denmark) and a Danish company do not require the majority shareholder to submit Transfer Pricing documentation.
Also, remember that you always need to declare controlled transactions on your tax return regardless of being required to submit the Transfer Pricing documentation or not.
How does the Danish Tax Agency check Transfer Pricing?
In general, the Danish Tax Agency uses a system called Orbis.
This system enables the Danish Tax Agency to search in a database with companies in Denmark and abroad.
Naturally, checking Transfer Pricing is a challenging and complex task.
But to give you an idea, here is a simplified description of how it is checked:
The most common approach is to select comparable companies, which are adjusted to match your company as much as possible.
Depending on the type of controlled transactions, the Danish Tax Agency will make a report from Orbis that shows how much revenue and profit these companies made in the fiscal year.
By dividing the profit by the revenue, you can see how much percent of the revenue ends as profit.
The Danish Tax Agency then checks if you made the same profit in your company.
This is called the “Transactional Net Margin-Method” or the “TNMM” method short.
TNMM is the preferred method to benchmark Transfer Pricing when CUP data is unavailable (Comparable Uncontrolled Pricing).
Preparing compliant Transfer Pricing documentation and performing a benchmark analysis is a complex and specialised task most often prepared by your accountant or auditor.
What cost should you expect for Transfer Pricing documents?
Transfer Pricing documents consist of the following documents:
1: Master file
2: Local file
In general, a Local file is the most costly one to prepare.
Larger audit firms typically charge 90.000 DKK – 135.000 DKK + VAT for a Local file.
The Master file typically costs 60.000 DKK – 85.000 KK + VAT when done by a larger audit firm.
These are the typical prices we see for a smaller organisation.
The work needed for preparing Transfer Pricing documentation is extensive.
So always make sure to allocate sufficient resources to answer questions.
Can the deadline to submit Transfer Pricing documentation be extended?
It is important to note that different rules apply to the Master file and the Local file when it comes to extension of deadlines for submission.
The deadline for submitting a Local file can generally only be extended if the deadline for submitting the Corporate Income Tax return is also extended.
If you have applied for and received an extended deadline for the Corporate Income Tax return, you need to apply separately to extend the deadline for submission of the Local file.
Be aware that extending the deadline for the Corporate Income Tax return and the Local file rarely is accepted.
If the Master file is delayed, it is generally possible to submit the Master file from the previous year and inform the Danish Tax Agency when the Master file for the new year will be submitted, together with an overview of the most important changes since last year.
It is also possible to apply for an extension of the deadline to submit the Master file for up to 12 months.
So the extension options for the Master file are generally more flexible than the Local file.
Controlled transactions between two Danish entities, which are both tax residents of Denmark
If the controlled transactions are between two Danish entities, both tax residents of Denmark, there is no requirement to make transfer pricing documentation for these transfers.
Country-by-Country-Reporting (“CbCR”)
International organisations with a consolidated revenue of more than 5,6 billion DKK (750 million EUR) will need to follow Country-by-Country-Reporting (“CbCR”) requirements following OECD guidelines.
You can read about Controlled Foreign Companies (CFC) here
(This blog is updated last time: 11.3.2024)
FAQ
What is Transfer Pricing?
Transfer Pricing involves setting prices for transactions between companies controlled by the same owner or between a company and its majority shareholder. It's governed by OECD guidelines to ensure prices match those of uncontrolled, market-based transactions.
Why have Transfer Pricing rules in Denmark changed?
To combat tax avoidance strategies where companies manipulate intercompany pricing to reduce overall tax burdens, Denmark has tightened Transfer Pricing documentation requirements.
Who must submit Transfer Pricing documentation annually in Denmark?
Larger companies exceeding specific thresholds must submit Transfer Pricing documentation yearly, 60 days after the Corporate Income Tax return deadline.
What are the key thresholds for submitting Transfer Pricing documentation?
Companies must submit Transfer Pricing documentation if they have 250 employees or more AND either a balance sheet total of 125 million DKK or more OR revenue of 250 million DKK or more.
What does Transfer Pricing documentation include?
It should contain a Master file about the entire organisation, a Local file about the local entity, and a benchmark analysis demonstrating adherence to the arm's length principle.
What are the consequences of not submitting Transfer Pricing documentation on time in Denmark?
There's a fine of 250.000 DKK per year per company, which may be reduced to 125.000 DKK, and the Danish Tax Agency may estimate Transfer Pricing and apply additional penalties.
Can the deadline for submitting Transfer Pricing documentation be extended?
Deadline extensions are possible under specific conditions, particularly for the Master file, which has more flexible extension options compared to the Local file.
What is the fine for not submitting Transfer Pricing documentation on time in Denmark?
The initial fine is 250.000 DKK per year per company, potentially reducible to 125.000 DKK.
How does the Danish Tax Agency verify Transfer Pricing compliance?
Through a database system called Orbis, comparing your company's profit margin with similar uncontrolled transactions using methods like TNMM.
What should you expect to pay for an auditor preparing Transfer Pricing documentation?
A Local file will typically cost between 90.000 DKK and 135.000 DKK + VAT, while a Master file typically will cost between 60.000 DKK and 85.000 DKK + VAT. But it naturally will depend on complexity, auditor and so on.