Denmark: Annual report on transfer pricing adjustments | KPMG | US

Denmark: Annual reporting on transfer pricing adjustments

Denmark: Annual report on transfer pricing adjustments

The Danish tax authorities (SKAT) on 30 August 2017 published the annual report of transfer pricing statistics, trends, and forecast.

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The 2016 report (Danish) [PDF 650 KB] reveals an all-time record of downward income adjustments.

Statistics

A comparison of information from the SKAT report for 2015 to the information for 2016 [last year´s figures are shown below in brackets] reveals:

  • SKAT issued 20 [26] downward adjustments totaling DKK 11.5 billion / €1.5 billion [DKK 0.5 billion / €0.06 billion] related to resolved mutual agreement procedure (MAP) cases for companies that applied for relief from potential double taxation.
  • SKAT completed 188 [142] transfer pricing tax audits with upward adjustments totaling DKK 7.3 billion / € 0.98 billion [DKK 5.9 billion / € 0.79 billion].
  • SKAT resolved 22 [25] MAP cases and 143 [129] MAP cases are still pending—i.e., an increase in MAP cases still pending.
  • There were seven [eight] advance pricing agreement (APA) cases completed and 21 [19] APA cases are still pending.

During 2016, the cases resulting in upward adjustments were primarily about the pricing of intra-group goods transactions and services, financial transactions, and intangible assets. The largest adjustments still relate to the transfer and use of intangible assets.   

At year-end, 29 [30] of the pending MAP cases were put "on hold" because the cases were in litigation process—i.e., the cases were awaiting a decision by the Danish national tax tribunal, a higher appeals body in Denmark, or a foreign court, before the processing of the MAP cases can commence. 

New initiatives – alternative dispute resolution

In 2016, SKAT launched an initiative to test a new conflict resolution model to provide greater momentum in pending cases and to avoid long proceedings. Inspired by the experiences of the UK "alternative dispute resolution" mechanism, SKAT sought to establish a similar model with internal mediators. 

Consequently, 12 internal mediators were trained in the same model and principles and with the same teachers as in the UK. Given the timing of the training, the results of the new initiative and its effects on pending cases will not show until 2017 or 2018. 

KPMG observation

The historical level for downward income adjustments, that presumably are mostly related to SKAT’s own income adjustments from previous years, are generally (with a one-year exception) less than DKK 1 billion per year. The extremely high level of downward income adjustments for 2016 can be viewed as good news for taxpayers exposed to the risk of double taxation. 

The amount of downward adjustments for 2016 is significantly higher than the upward adjustments for the year. The upward adjustments appear to have found a more steady level. The adjustments for 2015 and 2016 generally have been lower than the three previous years (2012 to 2014). However, in particular, the statistics for the years 2012-2014 were characterized by a few large cases related to adjustments of intangible assets. Overall, transfer pricing professionals believe that the structural level of transfer pricing adjustments is closer to that for 2015 and 2016 than the level for the previous three years.

The high (increased) number of tax audits and an apparently steady level of large amounts of income adjustments in 2016 primarily reflect a continued and clear focus of the Danish tax authorities with respect to transfer pricing matters in Denmark. Based on the historical trends and the political interest for transfer pricing in Denmark, combined with implementation of the OECD action plans on base erosion and profit shifting (BEPS), it does not seem that the current level of tax audits or adjustments would be likely to decline in the near future. The record high level of downward income adjustments could, in the light of the reputedly aggressive Danish transfer pricing assessments completed in the past, indicate an improved management of on-going MAP cases. This could be interpreted as a reduction of the risk of double taxation related to Danish matters. 

 

For more information, contact a tax professional with KPMG’s Global Transfer Pricing Services group in Denmark with the KPMG member firm in Denmark, KPMG Acor Tax: 

Simon K. Schaadt | +45 5374 7044 | simon.schaadt@kpmg.com 

Martin Nielsen | +45 5374 7055 | martin.nielsen@kpmg.com 

Henrik Lund | +45 5374 7066 | henrik.lund@kpmg.com

Johnny Bøgebjerg | +45 5374 7090 | johnny.bogebjerg@kpmg.com

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