January 9, 2025, the Danish Supreme Court delivered a groundbreaking judgment in a significant transfer pricing dispute between Accenture A/S and the Danish Ministry of Taxation. The Court ruled in favor of Accenture, marking the first instance where the Supreme Court has sided with a taxpayer in a transfer pricing case.
CASE BACKGROUND
In 2001, Accenture Group’s operating entities, including Accenture in Denmark, entered into the International Assignment Agreement (IAA), governing the leasing of employees between group companies. This agreement stipulated that leasing companies would pay the direct and indirect wage costs with a fixed profit margin.
Additionally, in 2006, Accenture entered into a license agreement requiring them to pay a fixed percentage of their external client revenue as royalties for using intangible assets owned by another group entity.
The dispute centered on the Ministry of Taxation’s challenge to Accenture’s transfer pricing documentation and the arm’s length nature of transactions conducted within the Accenture Group. The Ministry argued that:
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the documentation was insufficient
and
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that the transactions did not comply with arm’s length principles.
SUPREME COURT RULING
Profit Mark-Up
The Supreme Court ruled that the Ministry of Taxation did not prove Accenture’s transfer pricing documentation (2005-2011) was so deficient it could be considered non-existent.
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The documentation adhered to OECD guidelines, employed the Cost Plus method, and included a comprehensive analysis of functions, risks, and comparability.
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Disagreements with the Ministry over the pricing method or analysis did not make the documentation inadequate.
As a result, Accenture’s income related to employee leasing costs for 2005-2011 could not be adjusted on an estimated basis, as the Ministry failed to show that the profit mark-up was not at arm’s length.
Royalty Rate
For the 2007 income year, the Court found no significant deficiency in Accenture’s transfer pricing documentation regarding royalty payments.
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The documentation followed OECD guidelines, used the Residual Profit Split method, and included detailed function, risk, and comparability analyses.
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The Ministry of Taxation did not prove that the royalty rate was not at arm’s length, so Accenture’s 2007 income could not be estimated discretionarily.
A Historic Decision
This ruling overturns the High Court’s previous decision and it is the first instance where the Supreme Court has ruled in favor of a taxpayer in a transfer pricing dispute.
The decision underscores the importance of adhering to international guidelines in transfer pricing documentation.
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