Transfer Pricing Documentation Requirements for Danish Businesses

The transfer pricing regulations in Denmark are crucial for many businesses, including various companies and other taxable entities operating with affiliated units. The law was updated in 2021, introducing stricter requirements for the annual submission of transfer pricing documentation.

Would you like to learn more about why the legislation was updated in 2021? We’ve written about it here.

In this article, we will delve into the specific requirements and exceptions concerning the documentation obligation. Additionally, we will review key deadlines and potential penalties for non-compliance.

Read on to gain a better understanding of transfer pricing legislation and how it impacts your business.

What Is Transfer Pricing?

A transfer pricing document consists of two files. Relevant entities subject to the documentation requirements must submit:

1. A master file, covering the group’s transfer pricing policies and other group-wide information.
2. A local file, addressing the policies of the Danish entity, including an assessment of whether the arm’s length principle was adhered to during the preceding tax year.

The files must also include all supporting evidence demonstrating that transfer pricing policies were implemented in practice and not merely outlined on paper.

Transfer pricing memorandums or other transfer pricing reports will not suffice to meet the documentation requirements.

Who Is Obliged to Document?

The documentation requirements apply to all taxable entities involved in transactions with an affiliated company, for instance, transactions between companies within the same group.

However, Danish entities in your business may be exempt from the rules if the group employs fewer than 250 people and simultaneously meets either of the following criteria:

• Total assets under DKK 125 million
• Annual turnover below DKK 250 million.

Note: Taxable entities must still submit documentation if they conduct transactions with an affiliated entity established in a country that lacks a double taxation agreement regulating transfer pricing. In such cases, the documentation requirements still apply.

What Does a Transfer Pricing Document Include?

A transfer pricing document is made up of two components:

1. The Master File: This file provides an overview of the group’s transfer pricing policies and relevant group-wide information.
2. The Local File: This file focuses on the Danish entity’s transfer pricing policies, along with a detailed assessment of the compliance with the arm’s length principle in the previous tax year.

Both files must include attachments that provide evidence of practical application of the transfer pricing policies. Transfer pricing memorandums or other reports are not sufficient to satisfy these requirements.

Key Deadlines for transfer pricing

The deadline for submitting transfer pricing documentation is 60 days after the deadline for filing the tax return. For entities with a tax year aligned with the calendar year, the deadline is therefore 29 August.

While it is possible to request an extension for submitting the master file, authorities are generally reluctant to extend the deadline for the local file. It is advisable to prepare the local file well before the deadline.

Penalties for Non-Compliance with Deadlines and Regulations

Failure to submit transfer pricing documentation on time incurs a fine starting at DKK 250,000 per year of delay. The fine can be reduced to DKK 125,000 if the documentation is submitted late but deemed sufficient upon review.

Want to Know More?

If you’d like to learn more or have any questions about transfer pricing, feel free to contact us.