Ensuring compliance with transfer pricing (TP) documentation obligations is a crucial part of multinational companies’ yearly governance process to avoid penalties, and constitutes a fundamental part of the tax-related requirements by law in most jurisdictions.
In Denmark, as in most OECD member jurisdictions, transfer pricing documentation is comprised of three essential components:
- Master File
- Local File
- Country-by-Country Report
These documents collectively define the transfer pricing strategies of a company within a multinational group, providing detailed information to assess the arm’s length nature of the company's controlled transactions.
We offer extensive experience in tailoring a transfer pricing documentation process that fits your business’ needs, to accommodate statutory deadlines and specific content requirements.
Danish Transfer Pricing documentation regulation
Denmark is renowned for its rigorous transfer pricing regulations. Under certain conditions, Danish taxpayers are required to prepare and submit sufficient transfer pricing documentation in a timely manner to the Danish tax authorities. Failure to meet the submission deadline can result in penalties starting at DKK 250,000 per entity per year, along with the risk of a discretionary assessment under a reversed burden of proof. The same risks apply if the submitted documentation is deemed insufficient.
What we do
Whether you're new to transfer pricing or seeking to enhance or digitalize your existing processes, our team of global transfer pricing experts help you navigate the complexities with ease.
We guide you through every step of the documentation process, providing clarity and confidence in your compliance strategy.
The Master File provides a comprehensive overview of a group's business operations, focusing on its global activities, transfer pricing policies, and the distribution of income and economic activity. It offers a high-level perspective to contextualize the group's transfer pricing practices within the broader economic, legal, financial, and tax landscape.
Specifically, the Master File should include:
- The legal and ownership structure of the group including the value drivers of the business
- An overall global supply chain model of the business and a list of essential service agreements between related parties, except R&D service agreements.
- Strategy around development, enhancement, maintenance, protection and exploitation of intangibles (DEMPE functions), namely which entity within the group owns valuable intangibles, and the strategy adopted for ongoing development of present and future intangibles, through contract R&D structures, license agreements, cost contribution arrangements, etc.
- Policy around leveraging of finance by the group, specifically covering information about whether the group has any entity performing central treasury functions, strategy around intercompany loans and guarantees, etc.
- The group’s consolidated financial statements, and information regarding unilateral Advanced Pricing Agreements and other tax rulings relating to allocation of income, which might have been obtained in different countries
The Local File should consist of three parts, i.e.:
- A general part in which the taxpayer has to provide detailed information about the management structure of the Danish entity, its legal ownership structure, its international reporting flows, its business strategy, description of the main activities per business unit, list of competitors and notification of business restructurings and transfer of intangibles, which took place during the year and the immediate preceding year.
- A second quantitative part, focusing on the intercompany transactions themselves, and the applied transfer pricing methods. More specifically, the second part requires the taxpayer to disclose the following information: detailed description of business unit activities, list of intercompany transactions for goods, services, financial and other transactions (including parties involved, relationship amongst the parties, transfer pricing policy applied and volume of transactions), information about cost contribution arrangements, list of Advanced Pricing Agreements, etc. Finally, it should include a functional and comparability analysis to conclude on the arm’s length nature of the controlled transactions undertaken by the taxpayer. A key component of effective documentation is a benchmark study, which analyzes comparable market transactions to validate your pricing policies and ensure competitiveness and compliance.
- A third part where it is required to attach economic, financial and accounting information for the taxpayer.
Each separate entity subject to taxation in Denmark must prepare a Local File.
Multinational groups with a consolidated turnover of at least DKK 5.6 billion (EUR 750 million) whose ultimate parent company is a resident in Denmark are required to make CbC reporting submissions.
A Country-by-Country report is a comprehensive overview of the global operations, providing detailed information about the global allocation of income, taxes paid and certain indicators of economic activity and substance across the jurisdictions in which the multinational group operates.
KPMG TPAD
Multinational enterprises are often required to contemporaneously prepare and maintain transfer pricing documentation in the form of a local file for each of the legal entities that forms part of a multinational enterprise. This often results in a long and costly process.
With KPMG TPAD, we use technology to rethink your existing transfer pricing documentation process, allowing your company to free up resources, while remaining compliant and efficient.
KPMG’s Global Transfer Pricing Services team possesses a wealth of experience in collaborating with tax authorities across various jurisdictions, enabling us to adeptly navigate complex tax environments. Through our extensive global network, we offer comprehensive support tailored to the unique transfer pricing challenges faced by multinational enterprises. By leveraging our deep expertise and strategic insights, we are dedicated to guiding businesses through the intricacies of international tax compliance, fostering effective communication with tax authorities, and developing robust transfer pricing strategies.
In Denmark, KPMG Acor Tax exemplifies this commitment by maintaining strong relationships with the Danish tax authorities, ensuring that our clients benefit from seamless collaboration and effective solutions within the local regulatory framework.
Our team is dedicated to fostering open and constructive communication between businesses and tax authorities, particularly during transfer pricing audits and the negotiation of Advanced Pricing Agreements (APAs). We emphasize transparency and mutual understanding, which are crucial for efficiently resolving issues and minimizing the risk of disputes. In addition, we provide strategic guidance on managing transfer pricing penalties, helping businesses mitigate financial impacts while ensuring compliance. These efforts are designed to empower our clients to navigate complex tax landscapes with confidence and clarity, supporting their long-term success.
For more information on the Danish Tax Agency and the Danish transfer pricing regulations, please visit skat.dk.
