Commercial Lawyers Denmark 2026: Transfer Pricing, Act 194A Thresholds & Documentation

Denmark’s adoption of Act 194A on 2 June 2025 has fundamentally reshaped the transfer pricing documentation landscape for multinational groups operating through Danish entities, and 2026 is the first full year in which those changes must be operationalised. For German CFOs, tax directors and in‑house counsel overseeing Danish affiliates, the central compliance decision is now binary: determine whether controlled transactions cross the new DKK 5 million breakpoint and, if so, ensure documentation meets the revised requirements before filing deadlines arrive. Engaging experienced commercial lawyers in Denmark who understand both the statutory framework and enforcement realities has become essential for groups that want to manage cross‑border pricing risk rather than merely react to it.

This guide sets out the Act 194A changes, maps thresholds and deadlines, provides a practical documentation checklist, and outlines dispute strategies should the Danish Tax Agency (Skattestyrelsen, commonly known as Skat) issue an adjustment.

Transfer Pricing in Denmark: What Act 194A Changed (Income Year 2025)

Act 194A, adopted by the Danish Parliament on 2 June 2025 and effective from income year 2025, relaxed certain transfer pricing documentation thresholds so that fewer companies are subject to full documentation obligations, while simultaneously tightening expectations for those that remain in scope.

The key changes introduced by the legislation are significant in both scope and practical effect:

• Raised controlled‑transaction breakpoint. A new DKK 5 million annual threshold for controlled transactions has been introduced. Danish entities whose aggregate controlled transactions with related parties fall below this amount are relieved from the obligation to prepare full transfer pricing documentation.
• Revised firm‑level size thresholds. The employee count, balance‑sheet total and revenue criteria that determine whether a company falls within the documentation regime have been recalibrated, narrowing the pool of obligated entities.
• Removed auditor‑statement requirement. The previous obligation for an independent auditor to verify TP documentation has been abolished, reducing administrative cost but shifting the burden of accuracy squarely onto the taxpayer.
• Altered filing and submission timing. The previous rule requiring documentation to be submitted within 60 days of the tax‑return filing deadline has been modified, with the Danish Tax Agency now able to request documentation on demand with a specific response window.
• Retained arm’s‑length standard. Denmark continues to apply the arm’s‑length principle as enshrined in the Tax Assessment Act (Ligningsloven) § 2 and aligned with OECD Transfer Pricing Guidelines.

The practical effect, as confirmed by both the Danish Tax Agency’s official guidance and advisory analyses, is that the compliance population has been narrowed, but the obligations for in‑scope companies have, if anything, intensified. Industry observers expect Skat to redirect freed audit resources toward higher‑risk, larger cross‑border arrangements, making rigorous documentation more important than ever for groups that remain above the thresholds.

Key Legislative Dates and Timeline

Who Is in Scope Now? Entity and Controlled‑Transaction Thresholds

Under Act 194A, the obligation to prepare full transfer pricing documentation is determined by a two‑tier test: the entity must exceed certain firm‑level size thresholds and its aggregate controlled transactions must exceed the DKK 5 million breakpoint.

The firm‑level thresholds broadly mirror the criteria used for classification under Danish company law and accounting rules. An entity is generally in scope if it exceeds at least two of three size criteria, measured by employee headcount, balance‑sheet total and net revenue, for two consecutive financial years. The precise numeric boundaries have been adjusted upward by Act 194A to align with revised EU accounting directives, meaning that genuinely small enterprises are now more likely to fall outside the regime entirely.

The DKK 5 million controlled‑transaction threshold is the critical new gating mechanism. It is calculated by aggregating the total value of all controlled transactions between the Danish entity and its related parties within a single income year. If that aggregate falls below DKK 5 million, the entity is exempt from preparing formal TP documentation, although it remains subject to the arm’s‑length principle and Skat retains the power to make discretionary adjustments.

Example Scenarios for German‑Owned Groups

Scenario 1, German parent with Danish limited‑risk distributor. A German manufacturing group sells finished goods to a Danish ApS that acts as a limited‑risk distributor. If the Danish entity’s annual purchases from the German parent, combined with any management‑fee or royalty flows, exceed DKK 5 million, full TP documentation is required. For a mid‑market industrial group, typical intercompany goods purchases alone will often clear this threshold, meaning the documentation obligation is triggered.

Scenario 2, German parent as capital provider (intercompany loan). A German GmbH provides a DKK 20 million subordinated loan to its Danish subsidiary. Interest payments, guarantee fees and any principal adjustments constitute controlled transactions. Even if the Danish entity is otherwise small, the aggregate value of financial transactions will almost certainly exceed DKK 5 million, bringing the entity within scope and requiring benchmarking of the interest rate against arm’s‑length comparables.

Filing Obligations, Deadlines and Practical Timing for 2026 Compliance

The filing regime under Act 194A has shifted from a fixed statutory deadline to a request‑based model. Previously, Danish entities were required to submit TP documentation within 60 days of the tax‑return filing deadline, a rigid timetable that created predictable but often burdensome compliance sprints. Under the revised framework, companies must have documentation prepared and available by the time the tax return is filed, but formal submission occurs only when Skat requests it, typically within a specified response window.

This procedural change has significant implications for commercial lawyers in Denmark advising multinational clients. The absence of a fixed submission deadline does not reduce the urgency of preparation; it merely shifts the pressure point. Documentation that does not exist at the time of Skat’s request cannot be retrospectively created without substantial legal risk. The recommended approach is to treat the tax‑return filing date as the de facto documentation deadline.

Removed Auditor Statement, What That Means

The elimination of the independent auditor‑statement requirement is a double‑edged development. It reduces compliance cost and removes a layer of third‑party verification, but it also means Skat can no longer rely on auditor sign‑off as a preliminary quality filter. The likely practical effect will be increased direct scrutiny of taxpayer‑prepared documentation, raising the stakes for accuracy and completeness. Companies should consider compensating for the absence of auditor review by engaging qualified legal counsel to conduct an independent review of transfer pricing documentation before filing.

Penalties, Enforcement and Skat’s Audit Focus

Denmark’s penalty regime for transfer pricing non‑compliance is robust and, for unprepared companies, financially painful. The Danish Tax Agency can impose a fine of DKK 250,000 per entity per income year for failure to prepare or submit adequate TP documentation when requested. This fine applies regardless of whether the underlying transfer prices are ultimately found to be arm’s‑length compliant, it is a documentation penalty, not a substantive pricing adjustment.

Beyond the initial fine, Skat has the authority to make discretionary income adjustments where it determines that controlled transactions have not been priced at arm’s length. These adjustments frequently carry a penalty surcharge, commonly described as a 10% uplift on the adjusted amount, and are accompanied by interest charges that accrue from the original due date of the tax. For large intercompany transactions, the combined financial exposure from adjustment, uplift and interest can be substantial.

Early indications suggest that Skat is reallocating audit resources freed by the narrowing of the compliance population toward higher‑value, cross‑border arrangements. German‑owned groups with Danish entities are a natural audit target given the volume of bilateral trade.

Likely Audit Triggers for Danish Affiliates of German Groups

• Persistent low margins. Danish entities reporting consistently low or negative operating margins relative to industry benchmarks.
• Large intercompany financial transactions. Loans, guarantees or cash‑pooling arrangements with pricing that deviates from observable market rates.
• Significant management fees or royalties. Payments to the German parent that lack clear functional justification or are disproportionate to the Danish entity’s revenue.
• Restructuring transactions. Business transfers, functional reallocations or termination of distributor arrangements that shift value to non‑Danish entities.

Practical Compliance Decision Framework for German CFOs

Managing cross‑border pricing risk in Denmark after Act 194A requires a structured decision process. The following framework provides a step‑by‑step approach for German CFOs and heads of group tax evaluating their Danish compliance obligations.

Step 1, Map all controlled transactions. Identify every transaction between the Danish entity and related parties: goods, services, IP licences, management fees, financial transactions (loans, guarantees, cash pooling). Calculate the aggregate annual value against the DKK 5 million threshold.

Step 2, Assess firm‑level size thresholds. Confirm whether the Danish entity exceeds two of three size criteria (employees, balance‑sheet total, net revenue) for two consecutive years. If both conditions are met (firm size and transaction volume), the entity is in scope.

Step 3, Decide on documentation preparation. For in‑scope entities, prepare full TP documentation (Master File and Local File) contemporaneously with the income year. For entities falling below the thresholds, maintain internal memos and intercompany pricing records as best practice, Skat can still challenge pricing, even without formal documentation obligations.

Step 4, Review and fix intercompany contracts. Ensure that all intercompany agreements contain arm’s‑length pricing clauses, clear functional and risk allocations, and explicit documentation responsibilities. Contracts should be reviewed and, where necessary, updated before the start of each income year.

Step 5, Commission contemporaneous benchmarking. Obtain or refresh comparability analyses for all material transaction types. Stale benchmarking studies (older than three years) are a common audit weakness. Contemporaneous benchmarking is the single most effective defence against discretionary adjustment.

Action checklist for immediate implementation:

• Complete controlled‑transaction mapping for income year 2025 by Q2 2026.
• Update or commission new benchmarking studies for all material intercompany flows.
• Review and amend intercompany agreements to align functional and risk allocations with actual conduct.
• Establish a documentation timetable that treats the tax‑return filing date as the preparation deadline.
• Brief qualified commercial lawyers in Denmark to review documentation and advise on dispute‑risk mitigation.

Transfer Pricing Documentation Checklist (SME and Mid‑Market Focus)

Comprehensive transfer pricing documentation protects against penalties and provides the evidentiary foundation for defending pricing decisions under audit. The following checklist reflects OECD Master File / Local File standards as applied under Danish law.

• Master File. Group organisational structure, description of business operations, intangible assets owned and used, intercompany financial activities, and group financial and tax positions.
• Local File. Detailed description of the Danish entity’s operations, controlled transactions, functional analysis (functions performed, assets used, risks assumed), comparability analysis and benchmarking study, and application of the selected transfer pricing method.
• Controlled‑transaction schedules. Itemised list of all transactions with related parties, including volumes, pricing terms and contract references.
• Intercompany contracts. Executed agreements for each controlled transaction type, with pricing mechanisms and allocation of risks clearly documented.
• Benchmarking study. Contemporaneous economic analysis demonstrating that intercompany prices fall within an arm’s‑length range. Studies should be refreshed at least every three years, with annual financial data updates.
• Board minutes and policy memos. Internal documentation demonstrating that pricing policies were established on an arm’s‑length basis and approved by appropriate governance bodies.
• Intercompany invoices and payment records. Complete records of invoicing and cash flows supporting each controlled transaction.

Retention: All documentation should be retained for a minimum of five years from the end of the relevant income year, consistent with the Danish Tax Agency’s audit statute of limitations for standard cases.

Template Clause Suggestions for Intercompany Contracts

The following sample clauses illustrate arm’s‑length pricing provisions that can be adapted to specific intercompany agreements. These are illustrative only, seek legal adaptation before use.

Sample clause 1, Pricing adjustment mechanism:
“The transfer price for Products supplied under this Agreement shall be reviewed annually by reference to a contemporaneous benchmarking study. Where the price falls outside the interquartile range of comparable uncontrolled transactions, it shall be adjusted to the median of that range with effect from the first day of the following quarter.”

Sample clause 2, Documentation cooperation obligation:
“Each party shall maintain and provide to the other, within 30 days of written request, all records, analyses and supporting data reasonably required for the preparation or defence of transfer pricing documentation in any jurisdiction in which the parties are subject to tax.”

Contract Drafting and Commercial Terms to Reduce TP Exposure

Beyond pricing clauses, German parent groups should embed several structural provisions in intercompany contracts to minimise transfer pricing risk in Denmark. Experienced commercial lawyers in Denmark recommend the following drafting strategies.

• Cost‑plus or resale‑minus formulae. Express pricing as a defined formula tied to verifiable costs or third‑party resale prices, rather than fixed amounts that become stale. This builds in automatic arm’s‑length compliance.
• Pass‑through clauses for extraordinary costs. Allocate extraordinary expenses (e.g., regulatory compliance costs, tariff changes) explicitly, preventing disputes about whether they have been factored into the transfer price.
• Termination and indemnity provisions. Where a distributor arrangement is terminated or restructured, include indemnity provisions that reflect the arm’s‑length compensation the Danish entity would receive for loss of business opportunity, a frequent Skat audit point.
• Allocation of documentation obligations. Assign clear responsibility for preparing, maintaining and updating TP documentation to a named party (typically the Danish entity, with cooperation obligations on the parent), reducing the risk of documentation gaps.

Dispute and Arbitration Strategy, What to Do If Skat Issues an Adjustment

When the Danish Tax Agency issues a transfer pricing adjustment, the financial and reputational consequences can be significant. A structured dispute strategy, ideally prepared before any audit commences, is essential for managing risk effectively.

Pre‑audit preparation. Assemble a response team comprising Danish legal counsel, the group’s transfer pricing adviser and the relevant operational managers. Conduct an internal mock audit to identify documentation gaps and pricing vulnerabilities. This proactive step, recommended by experienced commercial lawyers, can resolve issues before they crystallise into formal disputes.

Administrative appeal. Decisions by Skat can be appealed to the Tax Appeals Board (Skatteankestyrelsen) and subsequently to the National Tax Tribunal (Landsskatteretten). Administrative appeals are cost‑effective and frequently result in full or partial reversal of adjustments, particularly where documentation is robust.

Mutual Agreement Procedure (MAP). For adjustments resulting in double taxation between Denmark and Germany, the Denmark‑Germany double tax treaty provides for a MAP under which the competent authorities negotiate to eliminate double taxation. MAPs are increasingly effective in transfer pricing cases, though processing times can extend to 24 months or more.

Advance Pricing Agreements (APAs). For recurring high‑value transactions, bilateral APAs between the Danish and German tax authorities provide prospective certainty. While the process is resource‑intensive, industry observers expect APAs to become more attractive as Skat intensifies its focus on cross‑border arrangements.

Litigation. If administrative remedies are exhausted, the case may proceed to the Danish courts. Transfer pricing litigation in Denmark is complex and time‑consuming, and outcomes are unpredictable. Litigation should be treated as a last resort, pursued only where the financial exposure justifies the cost and where documentation is exceptionally strong.

Conclusion and Recommended Next Steps

Act 194A has recalibrated Denmark’s transfer pricing landscape. For German‑owned groups with Danish affiliates, the 2026 compliance year demands immediate action. The core decision, whether to prepare full TP documentation or confirm that the entity falls below the new thresholds, must be made now, supported by a controlled‑transaction mapping exercise and a current benchmarking study. Engaging qualified commercial lawyers in Denmark who combine transfer pricing expertise with dispute strategy experience is the most effective way to protect against penalties, defend pricing decisions under audit, and manage cross‑border pricing risk systematically.

Three immediate actions before year‑end:

• Complete the controlled‑transaction mapping and threshold assessment for all Danish entities.
• Commission or refresh benchmarking studies for every material intercompany transaction type.
• Engage Danish legal counsel to conduct an independent review of documentation and intercompany agreements.

Sources

1. Danish Tax Agency (Skattestyrelsen), Transfer Pricing Guidance
2. EY, Denmark Modifies Transfer Pricing Regulations: Act 194 A
3. PwC, Tax Summaries: Denmark Significant Developments
4. KPMG Denmark, Transfer Pricing Year‑End Considerations
5. BDO Denmark, The Danish Transfer Pricing Rules
6. Dania Accounting, Transfer Pricing Rules in Denmark for 2025
7. TPcases, Denmark Transfer Pricing Overview