The case of Denmark v. Global Services A/S, decided by the Danish National Tax Tribunal in December 2025, sets an important precedent in transfer pricing, particularly with regard to the valuation of intangible assets in intra-group reorganizations and the use of the discounted cash flow (DCF) method.
The decision provides technical criteria of high practical value for multinational groups that carry out transfers of intangibles, business restructurings, or carve-outs (i.e., the segregation or spin-off of part of the business for reorganization or transfer within the group), and focuses on an often-underestimated aspect: the correct determination of the return on routine functions versus the residual return attributable to intangibles.
This article provides an in-depth analysis of the facts of the case, the underlying technical concepts, and the main lessons that companies should consider from a transfer pricing compliance and risk management perspective.
Background to the case
Global Services A/S, a Danish entity belonging to a multinational group, participated in an intra-group reorganization that involved the transfer of intangible assets to another entity in the group.
To determine the value of these intangibles, the company prepared two valuation reports based on the DCF method, following a common approach in comparable transactions between independent parties:
- The total value of the business was estimated based on expected future cash flows.
- The routine functions that would remain with the transferring entity were identified.
- A return was assigned to these routine functions.
- The resulting residual value was attributed to the transferred intangibles.
The controversy arose when the Danish Tax Administration questioned how the company had determined the return applicable to routine functions.
The core of the conflict: return on routine functions vs. residual return
What are routine functions?
In transfer pricing, routine functions are those low-risk, low-complexity activities—such as administrative services, operational support, or contract manufacturing—that, under the arm’s length principle, typically receive stable and relatively low returns.
These functions differ from DEMPE (Development, Enhancement, Maintenance, Protection, and Exploitation) functions, which are those that generate and control the value of intangibles.
The company’s approach
Global Services A/S assigned a lower required return to routine functions than to the business as a whole. As a result:
- The value of routine functions increased.
- The residual value attributable to intangibles decreased.
From a tax perspective, this approach reduced the tax base associated with the transfer of intangibles.
The position of the tax authority
The Tax Administration argued that:
- Routine functions could not be valued using a required return lower than that of the total business.
- Doing so created an artificial distortion of the residual value, incompatible with what independent parties would accept under market conditions.
The DCF method and its correct application in transfer pricing
Why is DCF used in the valuation of intangibles?
The discounted cash flow method is widely used in transfer pricing when:
- There are no reliable external comparables.
- Unique or highly integrated intangibles are valued.
- Ongoing business transfers are analyzed.
DCF estimates the present value of future economic benefits, discounting them at a rate that reflects the risk of the asset being valued.
The critical point: the discount rate
In this case, the court placed particular emphasis on the fact that:
- The discount rate must be consistent with the actual risk profile of the functions or assets being valued.
- It is not acceptable to apply artificially low rates to routine functions when they form an integral part of the same underlying business.
The court concluded that the same required return should apply to both the total business and routine functions, aligning with the tax authority’s approach.
National Tax Tribunal decision
The National Tax Tribunal determined that:
- Global Services A/S’s methodology did not fully comply with the arm’s length principle.
- The tax authority’s approach to determining the return on routine functions was technically more consistent.
However, the court partially reduced the adjustment proposed by the authority, setting a final adjustment of approximately DKK 60.3 million, demonstrating that the analysis was technical and not merely confirmatory of the tax position.
Practical implications for multinational groups
This case leaves several key lessons in transfer pricing:
- Internalconsistency in valuation models
DCF models must be internally consistent. Differentiating rates of return without a sound economic justification significantly increases the risk of adjustments.
- Robustdocumentation of functions and risks
The precise delineation of routine functions and DEMPE functions is critical. Incorrect classification can substantially alter the valuation of intangibles.
- Relevancein intra-group reorganizations
Business reorganizations will continue to be a priority focus for tax administrations, especially when they involve strategic intangibles.
- Trendtoward greater technical scrutiny
The case confirms a global trend: tax authorities and courts are analyzing in depth the financial assumptions used in valuations, not just the stated methodology.
Conclusion
This case reinforces the importance of applying sound and consistent economic criteria in the valuation of intangibles under the transfer pricing framework.
Beyond Denmark, the decision is relevant for any multinational group using DCF models in intra-group transfers, as it shows that the incorrect allocation of returns between routine functions and intangibles can be successfully challenged by tax authorities.
From a risk management perspective, this precedent underscores the need to combine technical rigor, alignment with the arm’s length principle, and comprehensive documentation, all of which are indispensable elements in an increasingly demanding tax environment.
Is your group prepared to defend the valuation of its intangibles?
At TPC Group, as a company specializing in transfer pricing, we advise multinational groups on the valuation of intangibles, business reorganizations, and complex intragroup transactions, ensuring compliance with the arm’s length principle and adequate tax risk management. Our approach is based on sound economic analysis, robust technical documentation, and experience in tax audit and dispute scenarios.
Source: TPCases