- Professional News
- 10 May 2012
Danish Bill To Introduce Further Transfer Pricing Regulations
On 25 April 2012, a bill targeting so-called "no-tax corporations" was presented to the Danish Parliament. The bill contains increased fines for non-compliance with transfer pricing requirements and the introduction of a possible requirement for an auditor´s certificate on the transfer pricing documentation prepared.
Increased fines for non-compliance
The bill presented to Parliament introduces a) increases in the general level of fines in transfer pricing matters and b) minimum fines for non-compliance with transfer pricing requirements.
a) Increased fines in transfer pricing matters
The bill proposes new rules for the computation of the fine levied on businesses which make incorrect reportings in the income tax return and which are not required to prepare transfer documentation not to be required to prepare transfer documentation. The fine for making incorrect reportings in the income tax return may be fixed either on the basis of the annual turnover of the business or on the basis of the number of employees.
A fine based on the annual turnover of the business will be fixed at 0.5 percent of the turnover up to an amount of DKK 500 million (approx. EUR 67.2 million), 0.1 percent of the turnover between DKK 500 million (approx. EUR 67.2 million) and DKK 1 billion (approx. EUR 134.4 million), and 0.05 percent of any turnover exceeding DKK 1 billion (approx. EUR 134.4 million).
A fine based on the number of employees will be fixed at DKK 250,000 (approx. EUR 33,600) for each 50 employees. If the number of employees exceeds 500, the fine will be fixed at DKK 2 million (approx. EUR 267,000).
The fine levied will be the highest amount possible and may never be fixed below DKK 250,000 (approx. EUR 33,600). If the incorrect reporting made is deemed to be part of a systematic violation of tax legislation, the fine may be increased by up to 50 percent. This will be the case if for example it turns out that the taxable income of the business is to be amended significantly. A fine will be levied for each income year, in which reporting has not been made correctly.
Alongside the increase in the fines for incorrect reporting in the income tax return, the bill introduces minimum fines for failure to prepare transfer pricing documentation, when required to do so.
b) Introduction of minimum fines
According to the proposal, a fine, generally fixed at DKK 250,000 (approx. EUR 33,600), will be levied on businesses which have not prepared transfer pricing documentation. Until now, the fine has been set to match the supposed savings obtained by not preparing the transfer pricing documentation.
The current system, according to which an additional fine of 10 percent of any increase in the taxable income resulting from transfer pricing adjustments is levied, is to be preserved.
In the future, two separate fines each of a minimum of DKK 250,000 (approx. EUR 33,600) will be levied on a business which (i) makes incorrect reportings and which is not required to prepare transfer pricing documentation and/or (ii) which does not prepare the documentation required. In addition to these fines, an additional fine of 10 percent of any increase in the taxable income will be levied.
The requirement for an auditor´s certificate
Finally, the bill contains rules allowing the Danish Tax Authorities to request that a business submits an auditor´s certificate on transfer pricing matters.
According to the bill, the Danish Tax Authorities may direct their request to businesses which, over a four-year period, have suffered an operating loss or which have carried out transactions with group-related parties resident in non-EU/EEC jurisdictions with which Denmark has not concluded tax treaties.
In the certificate, the auditor must state that no evidence has been found to suggest (i) that the prepared transfer pricing documentation is not true and fair, (ii) that the documentation has not been prepared according to Danish requirements, and (iii) that the transfer pricing policy should not be in compliance with the arm's length principle.
Due to independence requirements, the regular auditor cannot issue the certificate if he has assisted the business in the preparation of the transfer pricing documentation. Only if the transfer pricing documentation has been prepared by an independent tax adviser may the regular auditor issue the certificate.
Impact of the bill
The bill is part of the ongoing efforts aimed at multinationals conducting business in Denmark without generating taxable income of any significance. Generally, the bill introduces further restrictions on corporations.
In our experience, a large number of businesses have not yet directed sufficient attention to compliance with Danish transfer pricing requirements. On the basis of the bill presented, we strongly encourage businesses which are subject to Danish transfer pricing regulations to ensure that the business complies with the current transfer pricing documentation requirements.
Bech-Bruun has significant knowledge of the Danish transfer pricing regime and will be able to assist businesses when preparing future transfer pricing documentation as well as reviewing existing documentation with a view to determine to what extent a business is exposed to fines under the rules proposed by the bill. Furthermore, Bech-Bruun has obtained significant experience representing businesses in transfer pricing matters vis-à-vis the Danish Tax Authorities, before the Danish Tax Tribunal and before the courts.