On 5 October 2020, the High Court made a decision on a case entitled “Denmark vs. Shoe Group A/S” against the tax administration’s transfer pricing (TP) approach.
The tax administration of Denmark used various theories to claim that a taxpayer’s documentation was insufficient and that, consequently, a discretionary tax assessment was not based on a proper economic analysis, though; the actual economic aspects of the transfer pricing were omitted in the process.
A Danish parent company, Shoe Group A/S, purchased goods from both internal and external producers, and the case concerned whether the trade with the foreign subsidiaries took place on arm’s length terms. The parent company had prepared two sets of two transfer pricing documentation, both of which were available when the tax authorities issued its assessment. The transfer pricing documentation contained a review of the parent company’s pricing and terms in relation to both internal and external production companies, and in addition, the transfer pricing documentation contained a comparability analyzes.
After an overall assessment, the High Court ruled not in favour of tax authority and found that the parent company’s transfer pricing documentation provided the tax authorities with a sufficient basis for assessing whether the arm’s length principle was complied with and that the documentation was not deficient to such an extent that it could be equated with a lack of documentation.
