Denmark - National Tax Court Decides on Broad Interpretation of Scope of Transfer Pricing Legislation

On 3 January 2020 a decision of the National Tax Court (SKM2020.4.LSR; decision dated 11 December 2019) was published in which the scope of the Danish transfer pricing legislation was addressed.

The issue came up in relation to the statute of limitation for tax assessments, which is longer (6 years) in respect of controlled transaction than for other transactions.

Transfer pricing rules for controlled transactions are normally associated with a scope related to the classic types of intercompany transactions such as sale of goods, licensing of intangibles, provision of services, loans and transfer of assets but in this case the issue was if shareholder related payments were within scope of the term “controlled transactions”.

In short, the facts of the case were as follows: Through a number of decreases in the nominal value of shares in a Norwegian company, a Danish resident individual shareholder received payments from the Norwegian company, and the issue was if this type of payment could be considered “controlled transactions”.

Because the Danish resident individual together with her father owned a majority equity stake in the Norwegian company, the issue at stake focused on the transaction type and if the transaction type could be a controlled transaction.

Further to an extensive analysis of earlier practice, court decisions and preparatory works related to the legislation, the National Tax Court decided on a broad application of the term “controlled transaction” and thus of the transfer pricing legislation in general and confirmed it covers shareholder related payments.