A Danish HQ acquired goods from an affiliated contract manufacturing company.
The Danish tax authorities issued an adjustment of the prices based on the Danish arm’s length provisions contained in section 2 of the Tax Assessment Act.
Decision of the Tax tribunal
The Tax Tribunal found that the tax authorities had proved that the company’s method for pricing the controlled transactions contained too many uncertainties.
The Tax Tribunal further found that the method applied by the tax authorities was in accordance with the OECD Transfer Pricing Guidelines, as the contract manufacturing activities could be equated with a service.
Finally, the Tax Tribunal did not find that the pricing of controlled transactions of goods or services could be based on a return on capital employed (ROCE). Pricing of controlled transactions of goods or services was to be based on a comparability analysis of similar transactions between independent companies, cf. OECD Transfer Pricing Guidelines 2010, p. 1.33 and 1.38.DK SKM2018-173-LSR