Danish practitioners are unanimous that transfer pricing and beneficial ownership have been the most significant tax issues this year. The amount of tax multinational companies pay in Denmark has been a topic of much political debate, with much attention ...
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Danish practitioners are unanimous that transfer pricing and beneficial ownership have been the most significant tax issues this year. The amount of tax multinational companies pay in Denmark has been a topic of much political debate, with much attention paid to transfer pricing. "Transfer pricing is a politically sensitive issue, particularly under a right wing government who dare not appear soft on it for fear of accusations of cosying up to big business," commented one practitioner.
The coalition between the Venstre and Conservative parties has proposed legislative changes to transfer pricing legislation to be signed into law before the next election, which must be held no later than November. In May 2011, the government proposed a cut of one-fifth in corporation tax from 25% to 20%. However, an increased audit focus on multinationals to compensate for any fall in tax revenue was also announced.
There are also proposals for multinationals reporting tax losses or with transactions with companies in low tax jurisdictions to be assessed by an external auditor. Minimum levels for non-compliance fines are proposed at DKr25,000 ($4,700) plus up to 50% of any upwards adjustment to income tax made as result of an audit.
Transfer pricing litigation has been a significant feature of the Danish tax market this year. With the legislative changes proposed, practitioners are certain that litigation will remain a feature of the market next year. One tax lawyer says: "Right now, everybody is waiting for the storm. Tax authorities are on the move for transfer pricing, no doubt about it."
Alongside transfer pricing, issues of beneficial ownership have been an important feature of the tax landscape with a number of high profile cases in the Danish courts. To avoid withholding taxes, foreign recipients of dividends must satisfy the conditions to be recognised as the distributing company's beneficial owner. This year, the tax authorities have taken a narrow view of what constitutes beneficial ownership. This has created problems for inbound investments, particularly by private equity funds investing through a series of subsidiaries. This has created a surge in both litigation and restructuring work for tax advisers as investors attempt to satisfy the restrictive criteria and avoid withholding tax charges.
Tax advisers anticipate that the issue will only be resolved by the European Court of Justice (ECJ). There are cases on the issue awaiting trial before the Danish Supreme Court. As it will take some time before these issues reach the ECJ, litigation on beneficial ownership is expected to be common in 2012.
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