Transfer Pricing Vol. 1 - Do you know your transfer pricing? Where is there control, and what needs to be reported on the disclosure form?

The consequence of omitting a transaction that should have been documented — rendering the transfer pricing documentation incomplete, whether submitted or not — is a fine of DKK 250,000, plus a 10% surcharge on any transfer pricing adjustment resulting from a tax audit.

The rules regarding control are, quite simply, very difficult to understand. Generally, there is control if more than half of the votes or capital is directly or indirectly controlled. The complexities arise quickly, for example, in family situations where the votes and capital of spouses, parents, and children must be included, in the use of tax-transparent entities like partnerships, and in agreements on shared control.

When preparing the disclosure form, it is essential to understand the ownership structure not only for subsidiaries, which most are likely aware of, but also for shareholders and sister companies. Companies owned by private equity funds may become connected with sister groups, thus becoming subject to disclosure and documentation requirements, even if the group itself does not meet the conditions for exemption.