Denmark Transfer Pricing Guide — Arm's Length, Documentation, CbCR

What Are Controlled Transactions?

Controlled transactions are defined in section 37(6) of the Danish Tax Control Act (Skattekontrolloven). They cover transactions between affiliated parties where one party exercises control over the other, or where the parties are consolidated. This includes:

• Transactions between a parent company and its subsidiaries.
• Transactions between sister companies under common control.
• Transactions between a company and its main shareholders (natural or legal persons exercising control).
• Transactions between a head office and its permanent establishment in another country.
• Transactions between a Danish permanent establishment of a foreign company and its head office.
• Transactions involving companies subject to the Danish Hydrocarbon Tax Act.

The key question is whether one party exercises control (bestemmende indflydelse) over the other. This typically means ownership of more than 50% of shares or voting rights, but de facto control can also trigger the rules. Even without formal control, if the parties are consolidated in the financial statements, the rules apply. For a complete definition, see section 2 of the Danish Tax Assessment Act (Ligningsloven).

Arm's Length Principle

The arm's length principle requires that prices and terms in controlled transactions match what would have been agreed between independent parties in comparable circumstances. This applies to all types of transactions: sales of goods, provision of services, loans, royalties, management fees, transfer of intangible assets, and any other financial arrangements.

Common transfer pricing methods accepted by SKAT:

• CUP (Comparable Uncontrolled Price) — Comparing the price to a similar transaction between independent parties.
• Cost Plus — Cost of goods/services plus an appropriate markup reflecting the functions performed and risks assumed.
• Resale Price — Resale price to an independent party minus an appropriate gross margin.
• TNMM (Transactional Net Margin Method) — Comparing the net profit margin to comparable independent companies (most commonly used in practice).
• Profit Split — Splitting combined profits from integrated operations based on each party's contribution.

The chosen method must be the most appropriate for the specific transaction. SKAT expects a functional analysis (funktionsanalyse) identifying the functions performed, assets used, and risks assumed by each party to support the selection of the transfer pricing method. For detailed guidance, see the OECD Transfer Pricing Guidelines, which Danish law follows closely. For IP-specific transfer pricing issues, including DEMPE analysis and royalty benchmarking, see our IP and royalty tax guide →.

Who Is Subject to the Documentation Obligation?

The obligation to prepare written transfer pricing documentation applies to parties liable to pay tax under section 38 of the Tax Control Act, unless exempt under section 40(1).

Full documentation obligation: Companies meeting any of these criteria must prepare full master file and local file documentation:

• 250 or more employees (alone or together with consolidated companies) and either a balance sheet of at least DKK 195 million or annual revenue of at least DKK 391 million.
• Cross-border controlled transactions with companies in non-EU/EEA countries that do not have a double taxation agreement with Denmark including transfer pricing provisions.
• Cross-border controlled transactions exceeding DKK 5 million annually (new threshold from income year 2025 — below this, the documentation obligation does not apply).

Limited documentation obligation: Companies with fewer than 250 employees and both balance sheet under DKK 195 million and revenue under DKK 391 million have a limited obligation. They only need documentation for controlled transactions with parties in non-EU/EEA countries that lack a qualifying double taxation agreement with Denmark.

2025 rule changes: From income year 2025, companies with total cross-border controlled transactions under DKK 5 million are no longer subject to the documentation obligation. Also, dividends and other unilateral corporate actions no longer need to be included in transfer pricing documentation. If you had a documentation obligation in previous years but fall below the new thresholds, you may cease preparing documentation — but the disclosure obligation (reporting controlled transactions in the tax return) still applies regardless of the threshold.

Disclosure obligation applies to all: Even if you are exempt from documentation, you must still provide information about your controlled transactions in your tax return (fields 503, 505a, 542, and 542a). This is mandatory for every company subject to the arm's length principle, irrespective of size or transaction value.

Documentation Requirements — Master File and Local File

Transfer pricing documentation consists of two parts: the master file (covering the entire group) and the local file (covering each Danish entity). Both must be prepared annually — you cannot refer to documentation from previous years or use multi-year documentation.

Master file contents (section 4 of the Executive Order on Transfer Pricing Documentation):

• A group chart showing the legal and organisational structure, including countries of each related party.
• A general description of the group's business activities.
• Details of the group's intangible assets.
• Details of the group's financial activities (including intra-group financing).
• Details of the group's accounting and tax status (including tax rulings, Advance Pricing Agreements).

Local file contents (section 5 of the Executive Order):

• A detailed description of the Danish entity's business.
• Detailed information, descriptions, and analyses of each controlled transaction.
• Records relating to the entity's economic, financial, and accounting data.
• A functional analysis identifying functions, assets, and risks.
• A benchmarking study or other comparability analysis supporting the arm's length pricing.

If the master file for the current year is not yet ready (due to different deadlines in the parent company's country), you may submit the previous year's master file as a preliminary master file (provided it is no more than one year old). You must state when the current year's master file will be submitted and describe any significant changes. The local file must be specific to the Danish entity — a single file covering all Danish group entities is not acceptable.

Format: Documentation must be submitted in an electronically readable format (readable PDF, CSV, TXT, DOCX, or XLSX). Image files are only accepted for appendices that are not available in readable formats. File naming should indicate the period and circle (e.g., Periode_Kreds_Finansielle_Aktiviteter.docx).

Filing Deadlines

For income years beginning on or after 1 January 2021, transfer pricing documentation must be submitted within 60 days of the deadline for filing the tax return.

Key dates: If your company has a calendar-year income year (1 Jan – 31 Dec), the tax return deadline is 30 June of the following year. The transfer pricing documentation is therefore due 60 days after 30 June, i.e., approximately 29 August. If the tax return deadline is extended (e.g., through an extension request), the 60-day period runs from the extended deadline. You can see your specific deadline in TastSelv Erhverv under "Skat for selskaber m.fl." (Tax for companies etc.).

How to submit: Documentation is submitted via the transfer pricing module in TastSelv Selskabsskat (DIAS). You get access to this module after stating in the tax return that the company is subject to the documentation obligation. For natural persons (main shareholders), submit via email to kontrolleredetransaktioner@sktst.dk. For hydrocarbon tax companies, request access via kulbrinte@sktst.dk.

Penalties for Non-Compliance

Failing to prepare or submit transfer pricing documentation carries significant penalties under Danish law.

Basic fine: DKK 250,000 if the party deliberately or through gross negligence fails to declare or submit documentation on time. The fine is reduced to DKK 125,000 if the missing documentation is subsequently prepared to the required quality.

Income adjustment fine: In addition to the basic fine, a fine of 10% of any increase in taxable income due to non-compliance with the arm's length principle.

Discretionary assessment: If adequate documentation is not provided, SKAT may determine the taxable income relating to controlled transactions on a discretionary basis — this typically results in an unfavourable assessment for the taxpayer.

False or misleading information: If a party deliberately or through gross negligence submits false or misleading information concerning fulfilment of the conditions for limited documentation obligation, a fine will be imposed.

If you receive a letter from SKAT stating that transfer pricing documentation has not been reported, and you believe it is a mistake in the tax return (i.e., the company is not actually subject to the obligation), you must request a review of the tax return via TastSelv Erhverv to rectify it. Do not ignore the letter — the 60-day clock is running.

Country-by-Country Reporting (CbCR)

Denmark has adopted the OECD's Country-by-Country Reporting (CbCR) standard as part of the BEPS (Base Erosion and Profit Shifting) project. Danish ultimate parent entities or surrogate parent entities of multinational enterprise (MNE) groups with consolidated group turnover equal to or exceeding DKK 5.6 billion per income year must submit a CbC report to SKAT.

Notification requirement: Danish entities that are part of an MNE group meeting the DKK 5.6 billion threshold must notify SKAT before the end of the current income year of which group enterprise will submit the CbC report for the following income year. Only the management company of a joint taxation group needs to submit the notification.

How to submit: The CbC report must be submitted electronically in XML format according to OECD guidelines. Submit via TastSelv Erhverv → "Skat" (Tax) → "Land for land" (CbC). The report is automatically exchanged with tax authorities in other participating jurisdictions under the multilateral competent authority agreement (MCAA) or relevant double taxation treaties.

Deadlines: The CbC report for an income year must be submitted within 12 months after the last day of the reporting fiscal year. For a calendar-year group, the 2026 CbC report is due by 31 December 2027. For guidance, see SKAT's CbC reporting guide and the OECD's XML schema user guide.

Key content: The CbC report includes aggregate information on revenue, profit before income tax, income tax paid and accrued, stated capital, accumulated earnings, number of employees, and tangible assets per tax jurisdiction. It also lists all constituent entities within the group and their main business activities.

Guidelines and Forms

Key forms:

• Form 04.021 — Controlled transactions disclosure for natural persons (mandatory even if documentation obligation does not apply).
• Form 05.022 — Controlled transactions appendix to the tax return (for hydrocarbon tax companies).

Key references:

• OECD Transfer Pricing Guidelines (followed by Danish law).
• Danish Tax Assessment Act (Ligningsloven), section 2 — arm's length principle.
• Danish Tax Control Act (Skattekontrolloven), sections 37–40 — disclosure and documentation obligations.
• Danish Executive Order on Transfer Pricing Documentation (TP-dokumentationsbekendtgørelsen).
• SKAT's legal guide sections C.D.11 (Transfer Pricing) — Danish only, but comprehensive.

For specific questions, call SKAT on 72 37 64 24 (transfer pricing) or 72 22 27 80 (CbCR).

FAQs

What is the arm's length principle in Danish tax law?

It requires that prices and terms in transactions between related parties match what would be agreed between independent parties. It is codified in section 2 of the Danish Tax Assessment Act (Ligningsloven) and applies to all controlled transactions including sales, services, loans, royalties, and management fees.

Who must prepare transfer pricing documentation in Denmark?

Companies with 250+ employees and either a balance sheet ≥ DKK 195 million or revenue ≥ DKK 391 million. From 2025, companies with cross-border controlled transactions under DKK 5 million are exempt. Smaller companies have a limited obligation for transactions with non-treaty countries. All companies must still disclose controlled transactions in their tax return.

What is the deadline for submitting transfer pricing documentation?

60 days after the tax return deadline. For a calendar-year company filing by 30 June, the TP documentation is due approximately 29 August. If the tax return deadline is extended, the 60-day period runs from the extended date.

What are the penalties for missing transfer pricing documentation?

A basic fine of DKK 250,000 (reduced to DKK 125,000 if remedied in time) plus 10% of any income adjustment. SKAT may also make a discretionary assessment if documentation is inadequate.

What is Country-by-Country Reporting and who must file?

CbCR applies to MNE groups with consolidated turnover ≥ DKK 5.6 billion. The ultimate parent entity files a CbC report in XML format via TastSelv Erhverv within 12 months of the fiscal year-end. The report is automatically exchanged with other tax authorities.

For group structuring and holding companies including sambeskatning and Pillar Two, see our holding companies guide →. For corporate tax return filing, see our business tax return guide →. For transfer pricing considerations in cross-border M&A, mergers, and restructurings, see our Cross-Border M&A Tax Guide →.