In May 2025, the Danish Supreme Court issued a landmark ruling in the case of Denmark v. EET Group A/S (Case No. BS-35371/2024-HJR), addressing critical issues regarding transfer pricing documentation and the application of the arm’s length principle.
Background to the case
EET Group A/S, a pan-European technology distributor, was subject to an audit by the Danish tax authorities, who questioned the correct application of transfer pricing in sales to its subsidiaries in Spain and Norway during the tax years 2010 to 2012.
The authorities claimed that the subsidiaries obtained margins higher than those of comparable limited-risk distributors, which would indicate possible overcompensation and, therefore, an understatement of taxable income in Denmark.
Supreme Court decision
The Supreme Court ruled in favor of EET Group, highlighting that:
- The transfer pricing documentation submitted by the company was not significantly deficient.
- The fact that the margins of some subsidiaries were outside the interquartile range of comparable companies did not, in itself, constitute sufficient evidence that the transactions were not carried out at arm’s length.
- The information available on comparable companies was limited, which reduced the usefulness of the interquartile range calculations in this specific case.
Implications for multinational companies
This ruling sets an important precedent, emphasizing that:
- Tax authorities must provide solid evidence before making transfer pricing adjustments.
- Mere deviation of margins from the interquartile range does not, in itself, justify a tax adjustment.
- It is essential to have adequate and consistent documentation to support the transfer pricing policies applied.
Do you need advice on transfer pricing?
At TPC Group, we have a team of experts who can help you evaluate and strengthen your transfer pricing policies, ensuring compliance with international and local regulations. Contact us for a personalized consultation.
Source: TPCases