Friday, 25 May 2012

Danish government initiatives to tighten the transfer pricing rules on multinational enterprises

The Danish Government has proposed legislation to tighten the grip on multinational enterprises in a general effort to increase tax revenues. The draft bill includes the following elements in relation to transfer pricing (TP):
  • After having requested and reviewed a company’s TP documentation, the Danish tax authorities can request that companies file an auditor’s report confirming that the company’s controlled transactions are undertaken in accordance with the arm’s length principle. The statutory minimum period for submitting the auditor’s report will be 90 days, with the cost borne by the taxpayer. The findings of the auditor’s report will not be binding upon the tax authority’s assessment of whether the company’s transfer prices are arm’s length. The proposal is limited to companies that have made an overall loss during a four year period and to companies having transactions with countries outside the EU/EEA with whom Denmark does not have a double taxation treaty.
  • Insufficient TP documentation or failing to duly meet subsequent requests of information from the Danish tax authority will be subject to a fine of approximately 35,000 EUR (DKK 250,000) per tax year, together with a penalty on 10% of any upward income adjustments. The 35,000 EUR fine can be reduced by 50% if proper TP documentation is subsequently submitted. Currently, companies can in theory be fined twice the amount of the cost saved by not preparing documentation (but such fines have seldom been levied), as well as 10% on any upward income adjustments, with the possibility of a 50 % discount if proper TP documentation is subsequently submitted. 
  • The Danish tax authority will have discretion to make public all companies’ taxable income and tax payments via its internet homepage. Jointly taxed companies’ tax payments will be published as one company but showing the names of the affiliated companies.
Source: PKN