Transfer pricing concerns the pricing of controlled transactions. Controlled transactions are defined in section 37 para (6) of the Tax Control Act and are transactions between affiliated parties etc.
Controlled transactions are transactions between parties liable to pay tax, such as consolidated companies, or where one of the parties exercises control over the other party to the transaction, or where there is only one party liable to pay tax in connection with transactions between a head office and a permanent establishment.
In the calculation of the taxable income, the pricing of controlled transactions should be made according to the arm’s length principle. This means that prices and terms must be the same as the prices and terms that would be agreed in a comparable transaction between unrelated parties. See section 2 in Danish of the Danish Tax Assessment Act (Ligningsloven), which concerns:
Parties liable to pay tax
- over whom natural or legal persons exercise control,
- who exercise control over legal persons,
- who are consolidated with a legal person,
- who have a permanent establishment outside Denmark,
- who are foreign natural or legal persons with a permanent establishment in Denmark, or
- who are foreign natural or legal persons engaged in hydrocarbon-related business activities covered by section 21(1) or (4) of the Danish Hydrocarbon Tax Act (Kulbrinteskatteloven).
Parties liable to pay tax who are subject to the arm’s length principle in section 2 of the Tax Assessment Act must provide information on controlled transactions to the Danish Tax Agency. See section 38 of the Tax Control Act.
The same circle of tax-liable parties is subject to the arm’s length principle in section 2 of the Tax Assessment Act and to the disclosure obligation in section 38 of the Tax Control Act.
Parties liable to pay tax who are subject to section 38 of the Tax Control Act and who are not exempt under section 40(1) must prepare and retain written documentation (transfer pricing documentation) of such a nature as to provide the basis for assessing whether the prices and terms for controlled transactions have been determined in accordance with the prices and terms that could have been agreed in comparable transactions between unrelated parties, see subsections 2 and 4, however. See section 39, first sentence of the Tax Control Act.