The National Tax Tribunal Reduces the Danish Tax Agency's Increase by 91 % in a New Transfer Pricing Ruling

The National Tax Tribunal has ruled in yet another case regarding transfer pricing and has reduced the Danish Tax Agency's increase of the taxable income by almost DKK 3.8 bn. corresponding to 91 %. Plesner represented the companies in the case. 

The main issue of the case was, whether the transfer of intangible assets from Danish group companies to their American parent company had been agreed on arm's length terms. 

The case arose from the sale of a Danish group to an American group. When the American group a couple of years later was acquired by another American group, it was decided to let all subsidiaries globally - including the Danish companies - enter into license agreements with the American parent company, according to which the subsidiaries - including the Danish companies - were to pay royalties for the use of intangible assets owned by the parent company as well as the group's two IP-management companies. 

Before the National Tax Tribunal, the parties did not dispute the fact that the Danish companies, when entering into these license agreements, had transferred intangible assets to the American parent company. However, the main question of the case was whether virtually all of the Danish group's intangible assets or only those specifically mentioned had been transferred by the license agreements, and what the value of the transferred intangible assets was.

It was the view of the Danish Tax Agency that all intangible assets in the Danish companies were transferred by the license agreements with the exception of certain local marketing rights, and that the transferred intangible assets should be valued by a projection of the purchase price allocation that the American parent company had made when purchasing the Danish group. The projection made by the Danish Tax Agency was based on the market value development of the American group and the market value development of certain public companies that the Danish Tax Agency deemed comparable. 

The National Tax Tribunal ruled that the Danish Tax Agency had been entitled to make a valuation estimate, but that the Danish Tax Agency's estimated value of the transferred intangible assets was too uncertain and could therefore not be accepted. The National Tax Tribunal emphasized the time passed between the two transactions, that the value of the Danish group's intangible assets was not of a similar magnitude at the time of the two transactions, and that the development in the Danish group's intangible assets was not comparable with the share price development of the public companies, as claimed by the Danish Tax Agency. 

The National Tax Tribunal instead made use of a relief-from-royalty valuation and ruled that the Danish Tax Agency's valuation estimate of the transferred intangible assets was to be reduced by approximately 85 %. The National Tax Tribunal also decided on additional matters and ruled that the Danish Tax Agency's increase of the Danish companies' taxable income in total was to be reduced by approximately 91 % or almost DKK 3.8 bn. 

Read The National Tax Tribunal's anonymized ruling in Danish

The ruling has been appealed to the courts by the Danish Ministry of Taxation. 

The taxpayers are represented in the case by a Plesner-team led by Lasse Esbjerg Christensen and Jef Nymand Hounsgaard.

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