The concept of control

Failing to comply with the disclosure requirements can result in fines, potentially very large ones. The fine for incorrectly claiming that the company is exempt from preparing transfer pricing documentation is uncapped and is calculated based on the higher amount between the number of employees (up to a limit of DKK 2,000,000) or a percentage of revenue. If the fine is based on the number of employees, a company with 275 employees would face a minimum penalty of DKK 1,750,000.

The consequence of omitting a transaction that should have been documented — rendering the transfer pricing documentation incomplete, whether submitted or not — is a fine of DKK 250,000, plus a 10% surcharge on any transfer pricing adjustment resulting from a tax audit.

The rules regarding control are, quite simply, very difficult to understand. Generally, there is control if more than half of the votes or capital is directly or indirectly controlled. The complexities arise quickly, for example, in family situations where the votes and capital of spouses, parents, and children must be included, in the use of tax-transparent entities like partnerships, and in agreements on shared control.

When preparing the disclosure form it is essential to understand the ownership structure, not only for subsidiaries, but also for ultimate shareholders and sister companies. Companies owned by private equity funds or family members may become connected with sister groups, thus becoming subject to disclosure and documentation requirements, even if the group itself is not liable to document its intercompany transactions.