12 April 2021
On 25 March 2021, the Danish Ministry of Taxation has dismissed a case: SKM2018.511.LSR due to expectations that the company would succeed the case. The Ministry’s message that it admits defeat and will refrain from spending additional government and taxpayer time and resources is laudable.
The case concerns a Danish company that had generated a loss over a number of years. SKAT had estimated the company’s taxable income at e.g. the reason that the company had provided a service to the group by its presence on the Danish market. In SKAT’s view, the company should therefore be awarded compensatory remuneration for this service. The company had not described this service in its transfer pricing documentation and further disagreed that such a controlled transaction had taken place.
The National Tax Court had found that SKAT was entitled to make a discretionary assessment in accordance with the current Tax Control Act, section 3 B, subsection. 8, and § 5, para. 3, but that SKAT’s discretion was not exercised in accordance with the principles in the OECD’s Transfer Pricing Guidelines (TPG), as the specific circumstances of the case could not lead to a declaration of a lack of financial or commercial transaction between the company and one or more group companies. On this basis, the National Tax Court reduced SKAT’s increases in accordance with the complainant’s claim.
The Ministry’s decision follows a string of cases decided over the past two years in which Denmark’s Supreme Court and high courts have ruled against the tax administration’s homemade approach to transfer pricing. The Ministry specifically referred to the Supreme Court rulings in the 2019 Microsoft case and the 2020 Adecco case. The most recent loss for the tax administration’s approach was a Western High Court decision, the 2020 ECCO shoe case.