Deadline for mandatory submission of transfer pricing documentation in Denmark approaching

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. 

Generally, all companies that are liable to Danish taxation are required to prepare and submit transfer pricing documentation. However, some exceptions apply. Companies, including group companies with less than 250 employees and that either have 1) a total balance sheet below DKK 125 million or 2) an annual turnover below DKK 250 million on a consolidated basis are only subject to a limited documentation obligation. These entities are only required to document transactions with physical or legal persons and permanent establishments located outside the EU/EEA in a country with which Denmark has not entered a double taxation treaty with. 

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 etc.
    
2. A local file: 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 etc. 
    

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

The documentation must be of such 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 fail to submit the transfer pricing documentation on time or that submit documentation without the necessary quality are punished with a fine of DKK 250,000 per company or permanent establishment per income year. The amount can be reduced to a fine of DKK 125,000 per company/permanent establishment if the missing or improved documentation is subsequently submitted with the required quality. Furthermore, the fine is increased by 10% of the increase in income in case there is an increase in income as a result of the arm's length principle not being met. 

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 filing requirements, please feel free to contact us. 

For the income year 2025, new thresholds have been implemented. For the income year 2025 and onwards, companies with fewer than 250 employees and either 1) a total balance sheet below DKK 195 million or 2) an annual consolidated turnover below DKK 391 million will only be subject to limited transfer pricing documentation requirements. As a result, fewer companies will be required to submit full transfer pricing documentation going forward.

In addition, a few other exceptions are made, including the following. 

Generally, companies may be exempt from the documentation requirement if the total amount of their cross-border controlled transactions, excluding debt and receivables, does not exceed DKK 5 million, and as long as the total amount of the taxpayer’s controlled debt and receivables at the end of the income year is less than DKK 50 million.

There will be no documentation requirement for controlled transactions in the form of dividends and contributions both paid in cash.

As the new legislation is relevant for companies submitting transfer pricing documentation for the income year 2025 onwards, the new rules are relevant for the filings with deadlines starting in 2026.