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Transfer Pricing

Transfer pricing refers to the pricing of goods, services, or intangible assets transferred between affiliated companies.

Transfer pricing is a key focus area as it impacts both a company’s tax obligations and its ability to operate efficiently across borders. Incorrect pricing can lead to tax issues, including audits, fines, and interest.

When independent parties trade, there is a natural incentive for the seller to charge the highest possible price and for the buyer to pay the lowest, ensuring the transaction is conducted at market terms. However, when affiliated parties trade, these opposing interests may not exist, potentially disrupting the normal market mechanism.

Transfer pricing rules are found in §§ 36 a-d of Greenland's Income Tax Act.

The law applies to all companies; however, smaller companies are exempt from documentation requirements. Companies with fewer than 250 employees and either a total balance of less than 125 million DKK or annual turnover below 250 million DKK are subject to limited or no documentation requirements.

Smaller companies with transactions in countries with which Greenland has a double taxation agreement are not required to prepare written documentation. However, limited documentation is required if the smaller company has transactions with affiliated parties that involve:

  • A person or company domiciled in a country without a double taxation agreement with Greenland.
  • A permanent establishment in a country without a double taxation agreement with Greenland.
  • A company based in a country without a double taxation agreement with Greenland, with a permanent establishment in Greenland.

Documentation Requirements
Companies with full documentation obligations must provide two reports. The first, the Master File, describes the group, including all entities within the group worldwide, not just the taxable entity in Greenland. The second, the Local File, along with attached documents, describes the Greenlandic company and specific transactions recorded on form S 40. This report outlines the steps taken to comply with transfer pricing rules, ensuring each transaction meets arm's-length conditions. Companies must also produce a benchmark report comparing earnings of similar companies in the same industry, known as a FAR analysis (Functions, Assets, and Risks), to ensure comparable earnings among similar entities with similar functions, assets, and risks.

Starting from the 2023 income year, companies with full documentation requirements must submit transfer pricing documentation to the Tax Administration within 60 days of the tax return deadline.

 

English version of the form "Controlled transactions - Greenlandic taxation S40"