On 6 November 2019, the Danish Minister of Taxation published Bill no. L 48 on international taxation. The bill updated the existing PE (permanent establishment) rules, CFC rules and strengthen the Transfer pricing (TP) rules.

PE rules:

The permanent establishment (PE) concept under domestic Danish law is linked to the definition thereof in Article 5 of OECD Model Income Tax Convention. Denmark has recently signed the multilateral agreement of the OECD. Accordingly, most Danish tax treaties will also be amended. On this basis, Denmark’s tax laws will be extended under its tax treaties in comparison with tax laws under national law.

Therefore, the bill proposed to change the domestic PE definition in order to align with the new definition in Article 5. However, two Danish special rules will be upheld: (1) a building site or construction or installation project work constitutes a PE from the first day, and (2) investments in shares, receivables and financial instruments only give rise to a PE if the activity amounts to a trading activity.

Transfer pricing (TP) rules:

Starting from 1 January 2020 following rules will be applicable:

• The TP documentation must be submitted to the tax authorities no later than 60 days after the deadline for the filing of the annual corporate income tax return. This will include both the master file and country specific file. The tax authorities are entitled to extend the 60-day deadline in extraordinary circumstances.
• TP penalties may be imposed if the TP documentation is not submitted within the 60-day deadline. Daily penalties may be imposed if the TP documentation is not submitted within the 60-day deadline. Penalties may also be imposed if the tax return reporting obligation regarding transfer pricing is not satisfied.
• The tax authorities will be entitled to assess a taxpayer on an estimated basis for TP purposes if the TP documentation is not contemporaneous and is not submitted within the 60-day deadline, i.e., the burden of proof is reversed.

CFC rules:

The bill intends to implement the CFC rules of the European Union’s (EU’s) Anti-Tax Avoidance directive (Council directives (EU) 2016/1164 and (EU) 2017/952) (the ATAD) into Danish law.

The following main changes are proposed:

• The asset test need to abolish;
• The income test is lowered from 50% to 33.3%;
• The concept of financial income will expanded to cover “other income generated from intellectual property (IP)”; and
• A Danish parent company may possible to choose to include only subsidiaries’ CFC income instead of the total Danish taxable income. The group must decide this in connection with the tax return, and the decision will binding for five years.

The CFC proposal is expected to enter into force on 1 January 2020.