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Danish Tax Authority Intensifies Transfer Pricing Audits


In December 2011 the Danish Tax Authority ("DTA") publicised its 2012 effort and recovery plan (the 2012 Plan). The 2012 Plan lists 117 specific focus areas. Seven of these concern issues directly relating to transfer pricing, including a new project aimed at the 150 largest corporations in Denmark. Of the 7 transfer pricing focus areas, 2 involve new projects which are set to begin in early 2012 and 2 are projects which are expected to be finalised by the end of 2012. Taxand Denmark takes a look at the 2012 Plan to see how multinationals in Denmark are likely to be affected.

The intensified transfer pricing audits give rise for multinationals to re-assess whether they have prepared the necessary documentation and are in fact ready for an in-depth transfer pricing audit. The DTA effort and recovery plan is publicised annually and contains a list of specific focus areas which the DTA will dedicate special attention to in the coming year, the so-called "projects".

Of the 117 areas listed in the 2012 Plan, 7 areas concern transfer pricing issues. We expect that 4 of these areas will receive a significant amount of attention from the DTA as well as the Danish press.

(i) Tax deficit companies
The focus will primarily be on companies which in the past 3-5 years have no or very limited taxable income in Denmark. The DTA has stated that no or immaterial tax payment could indicate that internal group payments are not conducted on arm's length.

(ii) Tax havens
The project focuses on interactions between Danish companies and affiliates located in tax havens. Further, the project also targets, inter alia, the issue of correct income and costs allocation in the companies.

(iii) Top 150 corporations in Denmark
This new project is part of a joint transfer pricing / corporate tax initiative, focusing on the income tax return, consolidated tax return and transfer pricing documentation of the top 150 corporations in Denmark. The overall purpose of the project is to ensure that the targeted corporations pay the correct corporation income tax.

(iv) Payment of management fees
The objective is to establish whether or not Danish group companies should receive payments for management and administrative tasks carried out on behalf of affiliate companies. In particular, it may be assessed whether Danish parent companies should receive remuneration for management services provided to foreign subsidiaries.

Taxand's Take

On the release of the 2012 Plan, the DTA announced that this year "they will go after the big fish". Companies which are or could be affected by any of these focus areas should re-assess whether they have prepared the necessary documentation and are in fact ready for an in-depth transfer pricing audit. Especially, companies which are among the top 150 corporations in Denmark and companies which in the last 3-5 years have not had taxable income in Denmark can expect a great deal of attention, not only from the DTA, but also from the Danish media.

Your Taxand contacts for further queries are:

Anders Oreby Hansen
T. +45 72 27 36 02

Kaspar Bastian
T. +45 72 27 34 24

Taxand's Take Author