In the coming weeks, the Danish tax authorities will issue guidance on the completion of the tax return relating to transfer pricing and inter-company transactions. It is the opinion of the tax authorities that there might be companies that have not completed the tax return properly. This may have consequences for the subsequent verification by the authorities. The guidance relates to both the obligation to disclose information and the documentation requirements.
The guidance will be send to the 100 companies which are expected to have filed erroneous tax returns. Hence, not all companies will receive a letter in this respect. The first letters are currently being dispatched. Subsequently, the Danish tax authorities will evaluate whether further action should be taken.
Obligation to disclose information
Information on the nature and extent of commercial and financial inter-company transactions must be disclosed on the tax return. It can be indicated on the tax return that the obligation to disclose information in this respect does not apply.
However, it is important to note that although the company is not subject to the documentation requirements, the company is still obligated to disclose information if the total intra-group transactions exceed 5 million DKK.
The tax return is insufficient if the declared information about inter-company transactions are incorrect. Consequently, the Danish tax authorities can estimate the tax liability.
Documentation requirements
Companies are required to keep a written record of prices and terms for inter-company transactions.
It can be indicated on the tax return that the company is not subject to the rules on transfer pricing documentation. This means that the company is subject to limited documentation requirements. Companies are not subject to the full documentation requirements if it alone or with group companies have fewer than 250 employees and has an annual balance sheet total less than 125 million DKK or an annual turnover below 250 million DKK.
Whether the activity is in Denmark or abroad has no impact on documentation requirements. Hence, the company can be subject to the documentation requirements although the activity in Denmark is minimal. Notwithstanding the above de minimis thresholds, the company will be subject to the documentation requirements in case of intra-group transactions with parties outside the EU/EEA in a country that has not concluded a double tax treaty with Denmark.
If incorrect information is declared on the kind of transfer pricing documentation that is required, the company may risk a fine.
In the dispatched letters, the Danish tax authorities will ask the companies once again to consider whether the company has had inter-company transactions in 2015, and thus may be subject to the documentation requirements in 2015. By reconsidering the above, the probability of adverse consequences subject to verification by the authorities is reduced. Hence, the companies are encouraged to check the tax return in respect of transfer pricing and inter-company transactions.
The above article is taken from tax:watch, our electronic English newsletter on Danish Tax and VAT matters. tax:watch is issued on the last Friday of each month and is free of charge. Please sign up here.