Danish Master Files

Background

For the taxable year 2025, the Ordinance on Documentation of the Pricing of Controlled Transactions (“TP Documentation Ordinance”) from 24 June 2025 newly governs the local documentation requirements in Denmark.  With this, we have noticed that some clients have met issues, when trying to fulfill their documentation requirements for Master Files (or “joint documentation” under the Danish regulations).

Such update memoranda are a pragmatic means to prepare annual group-level documentation in cases, where the business operations and circumstances of a group have not substantially changed.  Instead of preparing a completely new document, they work as an attachment to the existing Master File of the previous year, providing updated information about where changes have occurred, especially with regard to financial information.

With this year, it has not argued by local tax advisors in Denmark, that such an approach is no longer admissible for Danish purposes and that dedicated Master Files have to be prepared.  For the interest of our clients, we have discussed this directly with the Danish tax authority and provide our results and conclusions as outlined below.

Legal Framework

The Danish documentation requirements are based on Chapter 4 of the Tax Control Act from 19 December 20217 and the mentioned TP Documentation Ordinance (BEK No. 883 of 24/06/2025).  The latter replaces Ordinance no. 468 of 19 April 2022 that regulated the same area for taxable years until, including, 2024.

The Tax Control Act regulates transfer pricing documentation, including Master Files, on a general level.  It especially requires taxpayers with defined related-party transactions to prepare written documentation that provides the basis for assessing whether the prices and conditions in these transactions comply with the arm’s-length standard.  Under this act, the documentation must be prepared on an ongoing basis and provided to the Customs and Tax Administration within set time limits.

Further specifications are given by the TP Documentation Ordinance.  This includes the clarification that the transfer pricing documentation consists of two parts, the joint documentation and the country-specific documentation.  From the list of required contents of these two parts, it is clear that “joint documentation” and “country-specific documentation” are only the terms the local regulations apply for what the OECD Guidelines call the “Master File” and the “Local File” respectively.

Documentation Format.

Besides determining that these two parts exist and listing required contents, the TP Documentation Ordinance provides virtually no guidance on how taxpayers should format the documentation, including the Master File.  Rather, it focuses on the content-related aspects, including that the necessary extent of description and analyses depend on the specific circumstances and complexity of the group, the taxpayer, and the related-party transactions.  While the experts of the Danish tax authority clarified that their focus is on the actual content of the documentation, they remained vague in terms of the format (only for Master Files covering multiple business years they clarified that such would not be acceptable).  Regarding the question of an update memorandum, they referred to the authority of the legal courts to ultimately decide about such a matter.

Conclusion

Our discussions did not result in a clear statement of the tax authority experts, if a simple update memorandum instead of a dedicated, new Master File, would comply with the Danish documentation requirements or not.  While a benevolent tax authority might be willing to accept an update memo for 2025 with the complete Master File of a previous year, such an approach entails additional compliance risk.  Experiences with the tax administrations of other countries have already shown that formal arguments, rather than discussions about the contents, are a convenient means of challenging transfer prices.  Besides typically shifting the burden of proof on the side of the taxpayer, it also might enable tax examiners to impose additional penalties for missing or insufficient documentation.

Recommendations

Accordingly, our recommendation to our clients is the preparation of comprehensive Master Files for each specific business year.  Besides avoiding unnecessary compliance risks, this also helps provide the tax examiners with a concise, easily understandable document.  The latter aspect is particularly important in practice, as tax examiners handling transfer pricing matters are frequently no experts in this field.  Having a well-structured and easily understandable report makes it easier for them to get the assurance that the taxpayer made reasonable efforts in ensuring arm’s-length transfer pricing.

For discussions about how to prepare such a Master File and how we can support, please reach out to us under info@bdanalysis.ch.  Situations where you have relied on an update memorandum instead of a dedicated report are effectively a legal matter and should be dealt with accordingly by tax lawyers proficient in the respective jurisdictions.  While we are a dedicated valuation practice not providing legal support, we have an extensive network of experts and might be able to refer you to suitable specialists.