On 18 January 2021, the National Tax Tribunal uphold a decision on a case of SKM2021.33.LSR regarding intragroup deposits with a group treasury entity, mentioning the taxpayer’s flawed documentation and differences in the interest rates charged and paid by the entity. In this case, the tax agency (SKAT) properly concluded that “H Borrower and Lender A/S”, a Danish subsidiary in the H Group, had placed deposits at and received loans from a group treasury company, H4, where the interest rate paid on the loans was substantially higher than the interest rate received on the deposits.
After examining H’s transfer pricing documentation, SKAT concluded that the company failed to establish the validity of the comparable uncontrolled price method analysis it used to support the interest rate on its deposits with H4. The agency determined that H’s application of the CUP method relied on inappropriate comparables, and that the differential between the interest rates H4 paid its depositors and the rates it charged borrowers allowed it to earn substantial profits that could not be justified by its minimal functions.
The Tribunal held that the tax agency was authorized to make a discretionary assessment in this case because of fundamental flaws in the taxpayer’s transfer pricing documentation. Due to insufficient transfer pricing documentation, the tax authorities (SKAT) issued a discretionary assessment of taxable income where the interest rate on the loans had been adjusted based on the rate received on the deposits.
