Software A/S was a fully fledged Danish distributor of software an related services up until 2010 where the company was converted into a commissionaire dealing on behalf of a newly established sales and marketing hub in Switzerland.
Following an audit, the Danish tax authorities issued a assessment where additional taxable income from the transfer of intangibles to Switzerland in 2010 had been determined by application of the DCF valuation model. As no transfer pricing documentation had been prepared on the transfer, the assessment was issued on a discretionary basis.
Software A/S filed a complaint to the Danish Tax Court.
The Tax Court found that the tax authorities did not have the authority to make a discretionary assessment. It was emphasized that the company in its transfer pricing documentation had described the relevant circumstances for the restructuring. Furthermore, the company had analyzed functions and risks and prepared comparability analyzes for transactions before and after the restructuring.
However, the Tax Court found that the authorities had proved that during the restructuring, valuable intangible assets had been transferred, which were to be priced in accordance with Danish arm’s length provisions.
For this purpose, the Tax Court applied the valuation model prepared by the tax authorities, but where the expected useful life of the assets was limited to only 10 years – and not indefinite as determined by the authorities – resulting in a lower value.
DK vs Software Distributor September 2020