Draft Danish bill would tighten transfer pricing rules

By Susi Baerentzen, Ph.D, Copenhagen

The Danish Parliament on October 4 officially opened the new parliamentary year, and true to tradition, a number of new legislative proposals went out for public consultation.

Included was a draft bill that would tighten Denmark’s transfer pricing rules, allowing the Danish tax administration to conduct discretionary assessments. The bill would also modify when transfer pricing documentation is due.

Demark’s transfer pricing documentation requirements have been heavily debated in recent years. The rules were strengthened most recently, with effect from January 1, 2019, requiring that transfer pricing documentation be composed continuously and that it be complete by the time of filing the forms.

If the taxpayer fails to comply with Denmark’s transfer pricing documentation rules, taxable income can be based on a discretionary assessment by the tax administration.

Since the 2019 Danish Supreme Court ruling in the Microsoft Case (SKM2019.136.HR), the scope of these rules has been questioned, and, consequently, the October 4 draft bill is intended to clarify the tax administration’s discretionary assessment power in case of insufficient transfer pricing documentation.

Simultaneously, the draft bill introduces a requirement that the documentation must be filed alongside the transfer pricing forms. If the taxpayer fails to submit the documentation on time, the tax administration may conduct a discretionary assessment.

In essence, the tax administration has the right to conduct a discretionary assessment if the transfer pricing documentation filed alongside the tax return is insufficient; however, any information provided by the taxpayer afterward must also be taken into consideration.

It shall be interesting to see how the draft bill fares, and we will keep you updated on its progress.