Amendments to TP documentation requirements and Amount B

The draft bill introduces changes to the thresholds that determine when a taxpayer is subject to Denmark's full transfer pricing documentation requirements. The changes relate both to the size of the group and the volume of the individual taxpayer’s controlled transactions. Furthermore, certain types of controlled transactions are explicitly exempted from the documentation obligation. 

The draft bill does not implement Amount B in general, however Denmark acknowledges the political agreement. Amount B applies if countries with which Denmark has a double taxation agreement and that are listed as Covered Jurisdictions, have implemented Amount B.

Amendment of the thresholds for full transfer pricing documentation requirements
The draft bill introduces higher thresholds with respect to revenue and balance sheet total. A taxpayer will only be subject to limited documentation requirements if, together with affiliated group entities, the taxpayer:

• has fewer than 250 employees, and
  • either has an annual revenue of less than DKK 391 million, or
  • a balance sheet total of less than DKK 195 million.

This constitutes an increase in the revenue threshold from DKK 250 million to DKK 391 million, and in the balance sheet total from DKK 125 million to DKK 195 million. It remains a requirement to prepare transfer pricing documentation for transactions with affiliated entities resident in countries outside the EU/EEA with which Denmark does not have a double taxation agreement.

The volume of controlled transactions affects the documentation obligation
The draft bill also introduces an exemption from the transfer pricing documentation requirement based on the volume of the taxpayer’s controlled transactions.

Taxpayers with total controlled transactions below DKK 5 million in the income year, and intercompany balances below DKK 50 million, are, in most cases, not required to prepare transfer pricing documentation. However, documentation is still required for controlled transactions concerning intangible assets covered by Section 40 of the Danish Depreciation Act and for transactions with countries outside the EU/EEA that do not exchange information with the Danish tax authorities.

Controlled transactions that are explicitly exempt from the Danish documentation obligation are not included in the DKK 5 million/DKK 50 million thresholds.

In addition to the exemptions based on transaction volume, the bill also proposes exemptions for certain equity related transactions, such as dividend distributions and capital increases, as well as for minor investments presumed to be passive capital placements.

Implementation of Amount B
The draft bill does not implement Amount B in general. However, Denmark acknowledges the political agreement. Amount B will apply if countries with which Denmark has a double taxation agreement and that are listed as Covered Jurisdictions, implemented Amount B.

In such cases, standardized benchmarks for certain distribution activities will be introduced– which represents a deviation from the arm’s length principle.

According to the draft bill, the Amount B approach will, at this stage, only apply to 23 specific jurisdictions, including Mexico, Brazil, and Thailand. Furthermore, application of Amount B is subject to the condition that these countries implement the approach.

Amount B is subject to several conditions and applies for example, only applicable to wholesale distribution of tangible goods – and does not apply to commodities.