Denmark vs Corp. October 2015, Supreme Court, case nr. SKM2015.659.HR

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A Danish production company terminated a 10-year license and distribution agreement with a group distribution company one year prior to expiry of the agreement. 

The distribution agreement was transferred to another group company and the new distribution company agreed as a successor in interest to pay a "termination fee" to the former distribution company.

However, the termination fee was paid by the Danish production company and the amount was depreciated in the tax-return.

The Danish company claimed that it was a transfer pricing case and argued that the tax administration could only adjust agreed prices and conditions of the agreement if the requirements for making a transfer pricing correction were met.

The Supreme Court stated that the general principles of tax law in the State Tax Act §§ 4-6 also applies to the related companies. Hence, the question was whether the termination fee was held for "acquiring, securing and maintaining the applicant's income", cf. the state tax act § 6.

The Supreme Court found that payment of the termination fee did not have a sufficient connection to the Danish company's income acquisition for the payment to be tax deductible. The applicant was therefore not entitled to tax depreciation of the payment.

The Supreme Court ruled in favor of the Danish tax administration.

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