Transfer Pricing Aspects of Intangibles in Relation to Business Restructurings: The Impact of the BEPS Project on the Interpretation of the Arm’s Length Principle in Danish Tax Law

Kaspar Neumann Bertram

Student thesis: Master thesis


This thesis examines the effects of the OECD BEPS project on the interpretation of the arm’s length principle in Danish tax law. Specifically the thesis focuses on the provisions that govern the transfer pricing of intangibles when these are transferred in connection with business restructurings. The legal basis for the arm’s length principle in Danish tax law is found in section 2 of the Danish Tax Assessment Act. An analysis shows that this provision is to be interpreted in accordance with article 9 of the OECD Model Tax Convention and the OECD Transfer Pricing Guidelines (the guidelines). The main part of the thesis consists of a three-part analysis of the new material provisions that are found in chapter I, VI and IX of the newly consolidated 2017 version of the guidelines as a consequence of the BEPS project. The first part of the analysis focuses on the general provisions for applying the arm’s length principle. Companies are required to accurately delineate their controlled transactions in terms of contractual terms, an analysis of functions performed, assets used and risks assumed, product or service characteristics, economic circumstances and business strategies. Other factors may, depending on the circumstances, need to be included in the delineation for it to be considered accurate. The major changes brought about by the BEPS project is the expanded risk analysis and the new differentiation between commercial and financial risks. Assumption of the latter alone will now provide the funder with no more than a risk adjusted return. The second part focuses on the specific provisions relating to intangibles. What constitutes an intangible is now defined autonomously in the guidelines. Furthermore, it has been clarified that the return yielded from the use of an intangible is to be allocated based on functions performed, assets used and risks assumed in relation to the development, enhancement, maintenance, protection and exploitation of said intangible. Provisions have also been introduced that enable the tax authorities to use actual returns as presumptive evidence for the appropriateness of the pricing of transactions containing hard-to-value intangibles. The presumptive evidence is, however, subject to rebuttal under certain circumstances. The third part of the analysis deals with the specific provisions relating to business restructurings. The delineation follows the principles analyzed in the previous parts of the thesis, but specific emphasis is placed on performing an analysis of functions, assets and risk before and after the restructuring, the business reasons for the restructuring and the options that are realistically available to the parties.In order to demonstrate the application and challenges of the new provisions in a practical setting the thesis includes a fictitious case centered on a business restructuring of a multinational enterprise headquartered in Denmark. Ownership of several intangibles is transferred to a subsidiary in Hungary along with all the functions and risks related to DEMPE. This leads to a reallocation of profit potential between the two associated companies and the requirement for an arm’s length compensation is subsequently discussed.

EducationsMSc in Auditing, (Graduate Programme) Final Thesis
Publication date2017
Number of pages86