On 24 September 2020, the Danish Tax Administration published a Decision No. SKM2020.387.LSR, clarifying the transfer pricing documentation requirements for a change of business structure within a group company.

The case concerns a Danish company that was part of an international group within software solutions. The Danish company was transformed from a sales company into a commission agent on behalf of a group company. In connection with the transformation, the Danish company’s distributor agreement was terminated and replaced by a commission agent agreement, whereby customer contracts were subsequently entered into by the group company.

Following an audit, the Danish tax authorities had made a discretionary assessment of the company’s taxable income and found that the company’s transfer pricing documentation did not contain documentation for the transfer of intangible assets in connection with the conversion. the Danish tax authorities also found that in 2010 intangible assets in the form of know-how and customer relations were transferred to the group company. The Software Company filed a complaint to the Danish Tax Court.

The National Tax Court found that the tax authorities did not have the authority to make a discretionary assessment. It was emphasized that the company in its transfer pricing documentation had described the relevant circumstances for the restructuring. Furthermore, the company had analyzed functions and risks and prepared comparability analyzes for transactions before and after the restructuring.

However, the tax court found that the authorities had demonstrated that valuable intangible assets had been transferred during the restructuring, the price of which was to be set in accordance with Danish arm’s length rules.

On this basis, the National Tax Court found that the assets should be valued on the basis of SKAT’s valuation, but that the valuation should be reduced in relation to the expected useful life of the assets in question, which was assessed by the National Tax Court at 10 years based on a specific assessment of the length of the company’s customer relation.