On 9 January 2025, the Supreme Court delivered a ruling in favour of Accenture A/S, thus overturning the result of the previous ruling by the Eastern High Court in August 2023.
Background and Issues
Accenture Group is a global consultancy group within the management and technology sector, serving its clients through local operating companies in different countries across the world. The case concerned two different types of transactions:
Transaction 1 – Secondment of staff
The group's operating companies may provide services to customers by exploiting internal resources from other group entities through an International Assignment Agreement (“IAA”). Under the IAA, a cross-border resource can be sourced by a “Host-entity” (e.g. Accenture A/S) to perform temporary assignments whereafter the resource returns to its “Home-entity” where the member of staff is employed. According to the IAA, amounts payable by Host-entity to the Home-entity are to be determined based on the reimbursement of payroll costs and payroll, adding a markup of 30% (i.e., gross-margin) based on a consultancy services benchmarking study.
Transaction 2 – Royalty
In 2006, Accenture A/S entered into a licensing agreement with the Swiss group company Accenture Global Services GmbH (AGS). According to the licensing agreement, AGS owns a number of intangible assets, and Accenture A/S pays a royalty of 7% of its revenue from external customers for the use of these assets.
The High Court previously ruled in favour of the Danish tax authorities (DTA), finding Accenture's documentation insufficient due to inaccurate delineation of transactions and inadequate financial data segmentation. Consequently, with the burden of proof shifted and Accenture failing to demonstrate errors in the discretionary assessment, the DTA's assessment was upheld.
The Supreme Court Ruling
The Supreme Court ruled that the DTA did not demonstrate that Accenture's transfer pricing documentation for the income years 2005-2011 regarding the 30% markup, and the royalty rate of 7% was insufficient thus ruling the opposite of the Eastern High Court. The Supreme Court stressed that the transfer pricing documentation adhered to the principles of the OECD Transfer Pricing Guidelines, and further emphasized that due consideration had been carried out concerning the choice of transfer pricing methods concerning each transaction (the cost-plus method and the residual profit split respectively), a functional and risk analysis, and a comparability analysis supported by sufficient underlying data.
Important takeaways: