Deadline for mandatory submission of transfer pricing documentation approaching – also for permanent establishments

All related entities are obliged to apply the arm's length principle. Furthermore, some entities are also subject to the transfer pricing documentation obligations and must submit their written documentation electronically to the Danish Tax Agency within 60 days of the deadline for submission of the tax return. For entities using the calendar year this means that the deadline for the income year 2023 is 29 August 2024. 

Taxable entities that carry out controlled transactions across borders, or within Denmark but between companies with different tax treatments must comply with the transfer pricing documentation rules. Controlled transactions are transactions between taxable persons who are, for example, group-related, or where one of the parties exercises decisive influence over the other party in the transaction. 

Often it comes as a surprise for foreign companies having a permanent establishment in Denmark, that even transactions between the head office and the permanent establishment are included in the requirement to file transfer pricing documentation. 

Only companies including group companies exceeding certain thresholds must submit their transfer pricing documentation. Companies with fewer than 250 employees and either 1) a total balance sheet below DKK 125 million or 2) an annual turnover below DKK 250 million on a consolidated basis are subject to a limited documentation obligation. These entities are only required to document transactions with physical or legal persons and permanent establishments outside the EU/EEA with which Denmark does not have a double taxation treaty containing a transfer pricing provision. 

The written transfer pricing documentation must consist of:

1. A master file: a joint documentation describing the group including a group diagram, a description of the group's business activities, information about the group's intangible assets, information about the group's financing as well as financial- and tax position.
    
2. A local file: a country-specific documentation covering the specific entity including a detailed description of the entity and the controlled transactions and information about the company's financing as well as financial- and tax position. 
    

Both files must include appendixes, benchmarks and description of intercompany agreements. 

The documentation must be of such a nature that it can form the basis for an assessment of whether prices and terms for controlled transactions are set in accordance with what could have been achieved if the transactions were concluded between independent parties.

Controlled transactions that are immaterial in scope and frequency are exempt from the obligation to submit documentation. 

All documentation can be submitted in either Danish, Norwegian, Swedish or English.

Taxable entities that either with intent or gross negligence fail to submit the transfer pricing documentation on time or that submit documentation without the necessary quality may be punished with a fine of DKK 250,000 per company per income year. The amount can be reduced to a fine of DKK 125,000 per company if the missing documentation is subsequently submitted in the required quality. Furthermore, the fine is increased with an amount equal to 10% of any increase in income. 

However, the Danish Tax Agency may, upon request, postpone the deadline if special circumstances warrant it. Special circumstances could be, for example, if the taxpayer has been granted an extension of the deadline for submitting the tax return. However, it should be noted that the documentation must be prepared on an ongoing basis, and it is therefore not automatically the case that an extension of the tax return deadline will also entitle the taxpayer to an extension of the deadline for submitting the transfer pricing documentation. 

In some circumstances extension for filing the master file may be accepted if there are justified delays in gathering the relevant information from other countries. In such case the local file is filed on time together with the letter from the Danish Tax Agency accepting the postponement with filing of the master file. 

Furthermore, it should be noted that if the master file for the current income year is not ready by the filing deadline due to for example a later deadline in the relevant foreign country, the previous year's master file can be submitted provisionally, if it is not older than one year.  The submission must include the expected date for the current year's documentation to be filed and any significant changes affecting the Danish entity which are not included in the local file must be briefly described. An extension of the deadline for submission is not required in this case. However, if the joint documentation is older than one year, an extension must be requested.

If you have questions relating to the requirements to file, please contact us.