On April 28, 2016, the Danish Minister of Taxation issued two Orders (BEK No. 401 and BEK No. 402) regarding transfer pricing documentation under BEPS Action 13. BEK No. 401 will enter into force on July 1, 2016 and applies to controlled transactions in fiscal years beginning January 1, 2016 or later. BEK No. 402 will apply from January 1, 2017, and will replace previous guidelines (BEK no. 42).
This follows the legislation enacted by Denmark on December 18, 2015 to implement the OECD BEPS Action 13 minimum standards on country-by-country (CbC) reporting in a new Section 3B of the Danish Corporate Tax Act (CTA) that entered into force from January 1, 2016. The foregoing legislation did not address master and local filing requirements.
Under the new rules, when computing tax or earnings, taxpayers must use prices and terms of trade with related parties (controlled transactions) that are consistent with those used in independent party transactions (uncontrolled transactions), and depending on their size, they must prepare and retain written documentation on the prices and conditions for the controlled transactions. The documentation consists of two parts, (1) documentation on the entire group (master file) and (2) country-specific documentation for each taxpayer in the group. The documentation can be prepared in Danish, Norwegian, Swedish or English. Requested documentation shall be sent to the Danish tax authority (SKAT) within 60 days.
The master file should include the following:
- Chart depicting the group's legal and organizational structure.
- Essential value-adding factors (drivers of business profit) in the group.
- Description of the group's supply chain for the top five products and/or services in terms of revenue as well as all products and/or services that represent more than five percent of the group's consolidated sales.
- Description of essential service agreements between the related parties in the group (not including research and development service contracts), and a description of the essential services provided by major service centers in the group.
- Description of the main geographic markets for products and services.
- Analysis describing the primary contribution to the group's total value, including essential functions, risks and assets.
- Description of significant restructuring, acquisitions and divestments that occurred during the income year.
- General description of the group's overall strategy for the development, ownership and exploitation of intellectual property, including geographical location of the group's main research and development facilities.
- List of the intangible assets in the group relevant to transactions between related parties, including list of group entities that are the legal owners of the assets.
- List of significant agreements between the connected parties relating to intangible assets, including primary Cost Contribution Arrangements (CCAs), research and development service contracts and licensing and royalty agreements.
- General description of the group's overall transfer pricing policies for research and development and intangible assets.
- General description of all significant transfers of rights to intangible assets between related parties in a tax year, including entities and countries involved in the transfers.
- General description of group financing, including a description of the key financial arrangements with independent lenders.
- Identification of all the connected parties that have a central finance function, including the country under whose legislation these units are organized.
- General description of the group's transfer pricing policies in relation to the financial arrangements between connected parties.
- Group's consolidated financial statements for the year.
- Description of the group's existing unilateral Advanced Pricing Agreements (APAs), tax agreements and decisions regarding the distribution of income between countries.
The country-specific documentation should include the following:
- Description of the taxpayer's management structure, including a local organization chart and description of the individuals that local management will report to.
- Detailed description of the company and the business strategy pursued by the taxpayer, and an indication of whether the taxpayer has been involved in, or affected by restructuring or transfers of intangible assets in the current fiscal year and the tax year immediately preceding the current tax year.
- List of taxpayer's principal competitors.
- Description of the controlled transactions (such as purchasing, production, sale, delivery or receipt of services, loans, guarantees, purchase and sale of intangible assets, payment of royalties, etc.).
- Total domestic payments for each category of controlled transactions with the taxpayer (for example, payments for products, services, royalties, interest, etc.), and list of the tax jurisdictions where and from payments are made.
- Identification of each of the related parties involved in each category of controlled transactions with the taxpayer, and a brief description of the relationship with each of these parties.
- Copy of all significant controlled contracts with the taxpayer.
- Detailed comparability analysis and functional analysis of the taxpayer and the relevant related parties for each category of controlled transactions, including a description of all changes compared to previous years.
- Indication of the most appropriate transfer pricing method in relation to each category of transactions and justification for the method used.
- Indication of which party to the transaction is the tested party.
- Description of assumptions used in selecting the transfer pricing method.
- Descriptions of comparable transactions (internal and external), as well as information on the financial indicators of the independent companies, which were used for transfer pricing analysis, and the source of the information used.
- Statement of any comparability adjustments.
- Explanation of why the relevant transactions are priced in accordance with the arm's length principle, applying the selected transfer pricing method.
- Table showing the financial and accounting data used in the application of the transfer pricing method.
- Copy of the existing unilateral, bilateral and multilateral APAs and other tax agreements and decisions that are relevant to the controlled transactions.
- Revised financial statements for the tax year, or if not available, any non-audited accounts.
- Reconciliation of accounting data to the financial statements.
- Tables and charts showing the relevant economic, financial and / or accounting data for comparable independent transactions which are used for transfer pricing analysis, and an indication of the source of these data.
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