08 July 2025 Denmark modifies transfer pricing regulations: Act 194 A
On 3 June 2025, the Ministry of Taxation adopted Act 194 A, which brings a few, not insignificant changes to transfer pricing rules in Denmark. These changes will mainly affect small and medium-sized businesses by reducing some of the requirements for transfer pricing documentation. A new de minimis limit has been introduced. Companies with controlled transactions of less totaling than 5,000,000 Danish krone (DKK 5m) will no longer need to prepare transfer pricing documentation. This is particularly helpful for companies with small intra-group transactions, like holding companies. The Danish Tax Agency has aimed to exempt from documentation requirements companies with very small transactions. However, this exemption does not apply to transactions involving intangible assets or transactions with affiliated parties that are resident in a foreign state that does not exchange tax information with Denmark. These transactions will still be monitored by the Danish Tax Agency. The rules for small companies that are only subject to a limited documentation obligation have changed. The limit for the annual balance sheet asset criteria has increased from DKK 125m to DKK 195m, and the limit for annual turnover has increased from DKK 250m to DKK 391m. This change will help groups that fell slightly above the old limits and had to follow stricter documentation requirements. The amendment does not change the criterion for the number of employees, which remains at 250. Therefore, if the company currently has more than 250 employees on a consolidated basis, Act 194A will not affect the company. To qualify for the exemption under the new limits, companies must have fewer than 250 employees and either a balance sheet asset criterion of less than DKK 195m or an annual turnover of less than DKK 391m. These changes will take effect from the income year 2025. In another change, companies will automatically receive a deferral for their transfer pricing documentation when they defer their tax return submission. This means that, starting from the income year 2025, companies will not have to submit their transfer pricing documentation before their tax information, which under current rules could only be avoided by a separate request for deferral of the transfer pricing documentation. The amendment also adds a new provision to the Danish Tax Assessment Act that supports a simplified approach to certain transactions. This change aligns with the Organisation for Economic Co-operation and Development (OECD) agreement from 2021, including the Amount B report released in February 2024. However, this provision is limited to 23 countries that have a double taxation treaty with Denmark, which may limit its usefulness for Danish groups. An exception has been made for underlying subsidiaries in which the taxpayer, along with other parties, owns less than 5% of the capital and voting rights. This rule applies to situations in which the taxpayer has joint control over the subsidiary and favors investments made through transparent entities, like private-equity funds. This amendment aims to simplify the rules for controlled transactions with underlying subsidiaries. These transactions will be exempt from documentation requirements, as long as they are not part of a joint control influence agreement. This change will take effect for income years beginning on or after 1 January 2025. The recent changes to transfer pricing documentation requirements in Act 194 A will take effect from the income year 2025. Although these changes may not affect all taxpayers significantly, they will provide important relief for small and medium-sized companies. Businesses should be aware that current rules will still apply for the income year 2024, so they need to comply with the existing documentation requirements until the new rules come into effect.
Document ID: 2025-1402 | ||||||
