On 19 November 2018, the Danish tax authority published an overview of a decision by the Copenhagen Court on whether a company acted in a grossly negligent act for failing to submit the timely submission of transfer pricing (TP) documents and should be subject to penalties.

The company was accused with deliberate or gross negligence not to submit documentation to the tax administration for the company’s controlled pricing for the 2011-2015 income years by the deadline of 20 February 2017.The company explained that it was due to an internal communication shortage of the company due to the company’s restructuring that the tax administration’s letter of 19 December 2016 was not forwarded to relevant employees of the company.

The transfer pricing documentation for the 2011-2015 income years was eventually submitted on 7 April 2017. After reviewing the documentation, no adjustment of taxable income was proposed, but the tax authority sought to impose penalties for failing to submit the documentation within the standard 60-day deadline following the initial request, which was disputed by the company.

In its decision, the Court of Copenhagen found in favor of the tax authority. The Court found that regardless of the reason (internal communication failure due to restructuring), the company had acted with gross negligence in not being able to submit its documentation by the initial deadline.

Finally, the Court found that the company had failed to adequately prepare documentation for each income year. Therefore, a penalty should be imposed by the court for the late submission of documentation for each year based on an estimated minimum documentation preparation cost of DKK 125,000, resulting in a total penalty of DKK 625,000.