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Review and adjustments

Review and audit

What rules, standards and procedures govern the tax authorities’ review of companies’ compliance with transfer pricing rules? Where does the burden of proof lie in terms of compliance?

The Danish tax authorities' administration of the tax rules are set out in the Tax Administration Act and the Public Administration Act. The Danish tax authorities may undertake transfer pricing audits on the basis of Section 3B of the Tax Control Act and transfer pricing aspects may also be reviewed in connection with general tax audits of the taxpayers.

Generally, it is the taxpayer that must inform the Danish tax authorities sufficiently about the extent and content of its controlled transactions as set out in the statutory documentation and disclosure requirements. The tax authorities must then prove that the prices and terms used in a transaction deviate from the arm's-length prices and terms. The burden of proof may shift from the tax authorities to the taxpayer if sufficient documentation is not submitted to the tax authorities in due time.

Do any rules or procedures govern the conduct of transfer pricing audits by the tax authorities?

See previous response.


What penalties may be imposed for non-compliance with transfer pricing rules?

Penalties for not complying with the documentation requirements include fines and an assessment of the taxpayers' transfer pricing transactions, as mentioned above.


What rules and restrictions govern transfer pricing adjustments by the tax authorities?

The Danish tax authorities may make transfer pricing adjustments at the latest in the sixth year following the tax year concerned (ordinary adjustments).

Further, the Danish tax authorities or the taxpayer may make or request that an extraordinary adjustment be made, even when the deadline for making an ordinary adjustment is exceeded, such as in cases of double non-taxation or double taxation, when a foreign tax authority has made a decision of relevance for the taxpayer or if the Danish tax authorities have assessed the taxpayer on an incorrect or incomplete basis.


How can parties challenge adjustment decisions by the tax authorities?

Decisions made by the Danish tax authorities may be appealed to the Administrative Tax Court. The appeal must be received within three months of the taxpayer receipt of the assessment notice. A decision of the Administrative Tax Court may be brought before the city courts, then the high courts and ultimately the Supreme Court (if third-instance permission is granted).

With effect from 2017, the Danish tax authorities are educating internal mediators to help resolve transfer pricing cases as an alternative dispute resolution mechanism.

It is also possible to challenge through the mutual agreement procedure (MAP). Please see below.


What MAPs are available to avoid double taxation arising from transfer pricing adjustments? What rules and restrictions apply?

Most tax treaties concluded by Denmark contain provisions regarding termination of double taxation in transfer pricing cases based on the Model Tax Convention on Income and on Capital of the Organisation for Economic Cooperation and Development and the MAP described therein (Article 25 of the convention).

The only condition for requesting a MAP is that an action giving rise to double taxation has occurred in either of the treaty countries. While the tax authorities are not obliged to reach a solution on a double taxation issue, they are required to attempt to do so.

Taxpayers should generally ensure that the national rules on appeals can be used simultaneously with the MAP since invoking the MAP does not suspend the national appeal deadlines.

As an alternative to terminating double taxation via the tax treaties, or where no tax treaty with the relevant country exists, double taxation pursuant to a transfer pricing adjustment may be terminated under the EU Arbitration Convention if the relevant companies or entities are residents of EU member states.

The EU Tax Dispute Resolution Mechanism Directive (2017/1852/EC) also provides measures aiming to ensure that all disputes between EU member states relating to the interpretation and application of tax treaties are resolved.

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