In 2021, Denmark introduced a transfer pricing requirement to submit the transfer pricing documentation to the Danish Tax Administration. This blog aims to shed light on the key elements to take into consideration when preparing the transfer pricing documentation in Denmark, ensuring compliance, and avoiding penalties.
Denmark’s Transfer Pricing Requirements
Companies are required to prepare the transfer pricing documentation when:
- The company is part of a group that employs 250 or more employees, or
- The company has a revenue exceeding DKK 250 million and a balance sheet sum above DKK 125 million, or
- The company has intercompany transactions with companies located outside of the EU or in countries with which Denmark does not have a double-taxation agreement in place, regardless of the size of the group.
The above thresholds are calculated on a consolidated basis. This means that it is not only the Danish entity taken into consideration. This relates to all the thresholds, even including the employees. It’s noteworthy that Denmark’s revenue threshold is relatively lower compared to other countries, resulting in Danish companies often needing to prepare both Local File and Master File documentation, even if other companies within different countries don’t meet their local thresholds.
Denmark’s Transfer Pricing Submission
An additional key element for Denmark is the pro-active filing of the Local File and Master File. The transfer pricing documentation should be submitted by uploading the Master File and Local File to the platform of the Danish Tax Administration. The Danish legislation requires transfer pricing documentation to be submitted annually to the Danish Tax Administration.
Denmark’s Transfer Pricing 2023 Deadline
The Master File and Local File (including the appendices) must be submitted within 60 days after the deadline for filing the corporate income tax return. The corporate income tax return for 2022 (when the calendar year aligns with the fiscal year) is June 30th, 2023. This means that the transfer pricing deadline is August 29th, 2023.
Denmark’s Transfer Pricing Non-Compliance
In some instance, companies are unable to meet the filing date. The non-compliance of companies could result in penalties. The penalties for failure to comply with the submission deadline and/or transfer pricing documentation requirements can amount to DKK 250,000 per company per year, plus an additional amount equal to 10% of income adjustments related to non-compliance with the arm’s length principle for the fiscal year.
Furthermore, the burden of proof shifts to the taxpayer in transfer pricing cases, where the required transfer pricing documentation has not been submitted before the deadline.
Understanding and adhering to Denmark’s transfer pricing documentation requirements is essential for companies operating in the country. By proactively preparing and submitting comprehensive transfer pricing documentation within the specified deadline, businesses can demonstrate compliance, mitigate penalties, and maintain a transparent approach to transfer pricing. It is crucial to stay informed about the evolving regulations and consult with experienced professionals to ensure compliance with Danish tax laws.
TaxModel can help you in preparing the Master File and Local File with our dedicated TPnext team. TaxModel’s TPnext team consists of highly capable transfer pricing consultants who work with the reliable TPdoc system to ensure that all clients have compliant documentation.