The Eastern High Court rules in favour of EET Group A/S in extensive transfer pricing case
The EET group's intra-group sales and transfer pricing documentation
The EET group is one of Europe's largest distributors of IT components and spare parts, operating in 23 markets, carrying more than 1,100 brands and serving more than 30,000 annual buying customers.
The tax case concerns the intra-group resale of goods within the EET group in the 2010-2012 income years. EET Group A/S purchased goods from independent suppliers and resold them alongside its own products to its sales companies within the EET group. The resale price was set according to the Cost Plus Method. EET Group A/S applied the same intra-group price for each respective product towards all affiliated sales companies. The sales companies determined their own resale prices.
EET Group A/S' transfer pricing documentation included a comparability analysis in the form of a comparison of the gross margins achieved by EET Group A/S' sales companies compared to the gross margins achieved by independent comparable benchmarks companies.
The transfer pricing documentation included market data available in international acknowledged databases in each year. During the case, EET Group A/S presented additional market data concerning the tax years in question.
The Danish Tax Agency's ruling and subsequent administrative appeal
On July 8, 2016, the Danish Tax Agency made a discretionary increase of EET Group A/S' taxable income with a total of DKK 128,810,000 for the income years 2010-2012. The Danish Tax Agency has issued similar rulings for later income years.
The Danish Tax Agency's found that EET Group A/S' intra-group prices for goods sold to the group sales companies exceeded the market prices, as the net income margins of the group sales companies exceeded the net income margins of the middle half - the interquartile range (IQR) - of the independent comparable benchmark companies. The Danish Tax Agency increased the taxable income of EET Group A/S to the point where the sales companies' net income margins would correspond with the median net income margin of the benchmark companies. Adjustments to the median point of an arm's length range has been the Danish tax authorities' common practice for years.
EET Group A/S appealed the Danish Tax Agency's rulings to the National Tax Tribunal that ruled in favour of EET Group A/S on October 28, 2020. The National Tax Tribunal decreased the Danish Tax Agency's income increases to DKK 29,587,135.
The Danish Ministry of Taxation appealed the Danish National Tax Tribunal's ruling to the District Court in Lyngby that referred the case to the Eastern High Court in the first instance.
The Eastern High Court's judgment
On June 19, 2024, the Eastern High Court acquitted EET Group A/S of the Danish Ministry of Taxation's claim for further increase of EET Group A/S' taxable income.
The Eastern High Court found in favour of EET Group A/S that the transfer pricing documentation could not be set aside, and that EET Group A/S was right in carrying out the comparability analysis based on gross margins, rather than net margins as claimed by the Danish Tax Agency and the Ministry of Taxation.
The Eastern High Court also found in favour of EET Group A/S that any gross margins exceeding the interquartile range could only be adjusted to the nearest point within the arm's length range (the third quartile), and not to the median point, as claimed by the Danish Tax Agency and the Ministry of Taxation. The Eastern High Court's judgment is the first on this novel legal question.
The Ministry of Taxation has appealed the judgment to the Danish Supreme Court.
Plesner has assisted EET Group A/S during administrative appeals and litigation. Mathias Kjærsgaard Larsen and Jef Nymand Hounsgaard argued the case before the Eastern High Court. Plesner's case team is led by Lasse Esbjerg Christensen and includes Sigurd Daugaard Christensen, Morten Toyberg and Rebecca Rind-Nygaard.
Read the judgment on the Eastern High Court's website (in Danish)
Read an English software translation of the Eastern High Court's judgment