Executive summary

On 3 June 2025, the Danish Parliament enacted a new bill that includes several adjustments in the transfer pricing space. The Ministry estimates that these changes will result in at least 1,500 companies' being exempt from the requirement to prepare and submit transfer pricing documentation.

For many small and medium-sized enterprises, this may mean that they will no longer be obliged to produce transfer pricing documentation. Nevertheless, documentation requirements remain applicable for larger corporations and specific transactions. Furthermore, compliance with trading at market terms remains a necessity.

With the Danish Tax Agency's renewed emphasis on control measures and heightened focus on financial transactions and restructurings, it is increasingly important to establish a strong transfer pricing policies, along with submitting comprehensive and timely documentation.

Background

Transfer pricing refers to the pricing of intra-group transactions. Danish companies that are part of a corporate group (Group) must prepare and submit transfer pricing documentation substantiating that the prices used in cross-border transactions between affiliated companies are made on market terms.

When must transfer pricing documentation be prepared and submitted?

According to the current Danish rules, transfer pricing documentation must be prepared and submitted for companies that are part of a Group, unless the Group falls within the definition of a small group. A small group must fulfill two criteria:

1. Employees: The Group has fewer than 250 employees.
2. Revenue/assets: The Group has a turnover of less than 250 million Danish krone (DKK 250m) or assets less than DKK 125m.

As a starting point, the documentation requirement applies to all cross-border intra-Group transactions.

New bill and relaxations

Below are the most significant changes:

• New de minimis limit for the size of intra-Group transactions: Companies with total controlled transactions of less than DKK 5m will no longer be required to prepare transfer pricing documentation. However, there are a few exceptions:
• Transactions involving intangible assets are not exempt from the documentation requirement, irrespective of the transaction size. This implies that, for instance, royalty payments must always be documented.
• Transactions with counterparties located in countries outside the European Union/European Economic Area (EU/EEA) with which Denmark does not have a double taxation treaty (e.g., Dubai and Hong Kong) must also be documented, regardless of the transaction size.
• Transactions related to cross-border receivables and debts must be documented if the total amount of cross-border receivables or debts is equal to or exceeds DKK 50m at the end of the income year, regardless of the individual transaction size.

The revised de minimis limits will take effect from income year 2025.

• Increased thresholds for when a Group is considered as a small group without documentation obligations: Transfer pricing documentation thresholds have been revised, increasing the annual balance sheet total from DKK 125m to DKK 195m. Additionally, the limit for annual turnover has been increased from DKK 250m to DKK 391m.

Groups with more than 250 employees will still be required to prepare transfer pricing documentation, even if they fall below the newly established thresholds.

The increased limit values are set to take effect starting from the income year 2025.

The new bill also includes an exemption for underlying subsidiaries if the taxpayer, along with other parties within the Group, holds less than 5% of both the capital and the voting rights. This rule addresses situations in which the taxpayer is party to an agreement that allows for joint control over the underlying subsidiary, particularly favoring scenarios in which the taxpayer has invested in a company through a transparent entity, such as a private equity fund.

This bill exempts from the documentation requirement controlled transactions involving underlying subsidiaries. The exemption applies to underlying subsidiaries owned by a legal entity, but it is contingent upon the condition that the transaction is not conducted under a joint-control agreement.

Furthermore, the bill relaxes certain obligations by eliminating the requirement for transfer pricing documentation for cash dividends, grants and similar transactions (e.g., capital reductions and liquidation proceeds). Additionally, documentation requirements for investments via tax-transparent entities will be eased in the case of small holdings.

The bill is set to take effect from income year 2025, starting 1 January 2025. Importantly, none of the entry-into-force dates will apply to income year 2024. Consequently, transfer pricing documentation for income year 2024 must still be submitted in accordance with the existing rules and deadlines.

Transfer pricing fines

Insufficient documentation may arise in situations in which the comparability analysis is inadequate — for example, when there is a lack of benchmark analyses or other suitable transfer pricing analysis.

Although the focus has traditionally been on the absence of, or delays in, submission, the Danish Tax Agency's heightened review of submitted documentation has led to several penalty cases for inadequate documentation.

Fines typically amount to DKK 250k for failure to submit or for insufficient documentation. However, it is important to note that the fine can be reduced by half if comprehensive documentation is subsequently prepared.

Increased scrutiny by the Danish Tax Agency

The mandatory submission requirement has led to an increased emphasis on control measures within the transfer pricing landscape in Denmark.

With the Danish Tax Agency gaining access to a broader array of information, the Agency's scrutiny has become more focused. Heightened scrutiny on financial transactions, mergers and acquisitions, as well as restructurings has been noted.

As a result, the Danish Tax Agency is now examining a diverse range of transactions more closely. Companies engaged in financial transactions or restructurings should be cognizant that these activities may attract further scrutiny. Notably, the Danish Tax Agency is actively seeking to impose taxes if there may have been a "transfer of something of value." This concept is broad and can present challenges in compliance. Therefore, it is crucial to maintain comprehensive documentation detailing the events and rationale behind the pricing decisions made.

Implications

The recent legislative changes aimed at providing relief for small and medium-sized enterprises has the potential to ease some of the burdens these businesses face. However, it is essential to recognize that documentation requirements remain pertinent for larger corporations and specific transactions. Additionally, adherence to trading at market terms is a constant requirement.

Moreover, the ongoing enforcement actions by the Danish Tax Agency serve as clear indication that inadequate documentation will continue to generate penalties. Coupled with the renewed focus on control measures and heightened scrutiny of financial transactions and restructurings, the necessity for a robust transfer pricing policy, along with comprehensive and timely documentation, has never been more important.

As legislation continues to evolve, it is vital for businesses to remain informed about these changes and to ensure that their transfer pricing strategies and documentation align with current regulations and best practices.

(For additional background, see EY article, New consultation proposal changes requirements for transfer pricing documentation, dated 10 February 2025; a new article, focusing on the enacted bill, is pending.)