Danish Supreme Court Upholds Transfer Pricing Adjustment in Maersk Oil Case


Case Information:

Court: Danish Supreme Court
Case No: BS-15265/2022-HJR and BS-16812/2022-HJR
Applicant: Ministry of Taxation
Defendant: A.P. Møller – Mærsk A/S and TotalEnergies EP Denmark A/S (formerly Maersk Oil and Gas A/S)
Judgment Date: September 6, 2023

Judgment Summary:

The Supreme Court of Denmark ruled in favor of the Ministry of Taxation in two related cases involving transfer pricing disputes with A.P. Møller – Mærsk A/S (Maersk) and TotalEnergies EP Denmark A/S (TotalEnergies). The court upheld the Ministry’s claim that the taxable income of both companies for the years 2006-2008 should be increased significantly due to improper transfer pricing practices. Additionally, both companies were ordered to pay substantial legal costs.

Key Points of the Judgment:


MOGAS, a subsidiary of APMM, conducted preliminary feasibility studies for oil exploration worldwide and provided technical and administrative services to its subsidiaries in Algeria and Qatar. MOGAS issued performance guarantees for these subsidiaries but did not receive compensation for the studies or guarantees. The only intercompany compensation was reimbursement for technical and administrative assistance at cost.

Core Dispute:

The case centered on whether MOGAS’ transactions with its subsidiaries were conducted at arm’s length, as required by Danish tax law. The tax authorities argued that MOGAS should have received ongoing compensation for the economic value provided to its subsidiaries through feasibility studies, performance guarantees, and associated know-how.

Court Findings:

  1. The Supreme Court determined that the feasibility studies, performance guarantees, and associated know-how had economic value for the subsidiaries, for which independent parties would have required ongoing payment.
  2. The court found that MOGAS provided technical and administrative services (timewriting) at cost was not by arm’s length principles.
  3. The transactions were considered so closely related that they had to be assessed and priced on an aggregated basis.
  4. The court agreed that the tax authorities could determine MOGAS’ income on a discretionary basis and that the assessment was correct and based on OECD guidelines.


The Supreme Court upheld the tax authorities’ discretionary assessment, increasing MOGAS’ taxable income and APMM’s joint taxation income for 2006-2008. The court rejected MOGAS’ arguments and found no basis for overturning the tax authorities’ assessment.

The Supreme Court ruled that:

  • Maersk’s joint taxation income for 2006-2008 be increased by DKK 506,431,000, DKK 327,562,000, and DKK 468,185,000, respectively.
  • TotalEnergies’ taxable income for 2006-2008 be increased by the same amounts.
  • Both companies pay DKK 3,004,000 to the Ministry of Taxation with interest from April 21, 2022.
  • Both companies pay DKK 4,008,500 each in legal costs.

Transfer Pricing Method:

The tax authorities used a profit-based method, estimating additional income corresponding to a royalty rate of approximately 1.7% of the turnover in the two subsidiaries. The Supreme Court accepted this approach, which aligns with the Transactional Net Margin Method (TNMM) or the Profit Split Method as described in the OECD Transfer Pricing Guidelines.

Major Issues and Areas of Contention:

  1. Valuation of intangible assets: The court had to determine whether the feasibility studies and know-how provided by MOGAS had ongoing economic value for the subsidiaries.
  2. Performance guarantees: The court considered whether these guarantees constituted controlled transactions with economic value.
  3. Pricing of intra-group services: The appropriateness of charging only cost for technical and administrative services was disputed.
  4. Aggregation of transactions: The court had to decide whether to assess the transactions separately or as a whole.
  5. Discretionary assessment: The validity and reasonableness of the tax authorities’ discretionary assessment were challenged.

Controversy and Expectations:

The Supreme Court’s decision was somewhat controversial as it overturned the High Court’s previous ruling, which had referred the case back to the tax authorities for reconsideration. The Supreme Court’s acceptance of the tax authorities’ aggregated approach and discretionary assessment may be seen as a departure from a more transaction-specific analysis.

This decision was unexpected in its broad acceptance of the tax authorities’ position, particularly given the complexity of valuing intangible assets and services in the oil and gas industry. The court’s willingness to accept an aggregated approach and a relatively simple royalty-based adjustment may surprise some transfer pricing experts who might have expected a more granular analysis.

Significance for Multinationals and Revenue Services:

  1. Increased scrutiny of intra-group arrangements: Multinationals must carefully evaluate and document the economic substance of all intra-group transactions, including those involving intangible assets and guarantees.
  2. Importance of contemporaneous documentation: The case highlights the need for comprehensive transfer pricing documentation that addresses all potential value-creating activities within a group.
  3. Aggregation of transactions: Tax authorities may be emboldened to take a holistic view of related party transactions rather than analyzing them individually.
  4. Valuation of intangible assets: The case underscores the challenges in valuing intangible assets, particularly in industries with long development cycles like oil and gas.
  5. Cost-plus arrangements: Simple cost reimbursement for services may be challenged, especially where significant value is being created.
  6. Performance guarantees: These may be viewed as controlled transactions requiring arm’s length compensation.
  7. Retrospective assessments: Tax authorities may look back at historical arrangements, even if they were established long before the tax years in question.
  8. Global implications: While this is a Danish case, it may influence transfer pricing approaches in other jurisdictions, particularly within the EU.

Value of Transfer Pricing Expertise:

The Maersk Oil case demonstrates the importance of transfer pricing expertise in managing multinational tax affairs. Expert transfer pricing advisors can provide value in several ways:

  1. Risk assessment: Identifying potential transfer pricing risks before they become issues with tax authorities.
  2. Documentation: Preparing robust, contemporaneous documentation that supports the arm’s length nature of transactions.
  3. Valuation expertise: Providing sophisticated valuation analyses for complex transactions, particularly involving intangibles.
  4. Industry knowledge: Understanding industry-specific practices and norms that may influence transfer pricing arrangements.
  5. Dispute resolution: Assisting in negotiations with tax authorities and providing expert testimony in litigation if necessary.
  6. Global perspective: Offering insights into global transfer pricing trends and potential impacts of decisions in one jurisdiction on others.
  7. Strategic planning: Helping to structure intra-group transactions in a tax-efficient manner while managing risk.
  8. Benchmarking: Conducting thorough comparability analyses to support transfer pricing positions.

The value of such expertise can be measured in millions of dollars, as evidenced by the significant adjustments in the Maersk Oil case. Proper transfer pricing management can help avoid costly disputes, penalties, and double taxation.

Preventative Measures:

To avoid or better manage cases like this, multinationals should consider implementing:

  1. A robust tax risk management process: This should include regular risk assessments, clear policies and procedures, and ongoing monitoring of transfer pricing positions.
  2. A tax steering committee: As outlined in the article from taxriskmanagement.com, a tax steering committee can play a crucial role in:
    • Developing and implementing a comprehensive tax strategy
    • Ensuring alignment between tax and business objectives
    • Monitoring and managing tax risks across the organization
    • Overseeing transfer pricing policies and documentation
    • Facilitating communication between tax, finance, and operational teams
    • Providing governance and oversight of tax matters
  3. Regular transfer pricing reviews: Conducting periodic reviews of transfer pricing arrangements to ensure they remain appropriate and defensible.
  4. Advance Pricing Agreements (APAs): Considering APAs with relevant tax authorities to provide certainty on transfer pricing arrangements.
  5. Comprehensive documentation: Maintaining detailed, contemporaneous documentation that explains the economic substance and arm’s length nature of all significant intra-group transactions.
  6. Functional analysis: Regularly updating functional analyses to ensure accurate delineation of transactions and allocation of risks and rewards.
  7. Industry benchmarking: Conduct regular benchmarking studies to support the arm’s length nature of transfer prices.
  8. Technology solutions: Implementing transfer pricing software to manage data, calculate prices, and generate documentation more efficiently.
  9. Training and awareness: Ensuring that relevant personnel across the organization understand transfer pricing principles and their importance.
  10. Scenario planning: Developing contingency plans for potential transfer pricing challenges or disputes.

By implementing these preventative measures, multinationals can significantly reduce the risk of costly transfer pricing disputes and better position themselves to defend their positions if challenged.

In Summary

The Maersk Oil case is a stark reminder of the complexities and potential pitfalls in transfer pricing for multinational enterprises. It underscores the need for proactive, expert management of transfer pricing issues and the implementation of robust governance structures like tax steering committees.

As transfer pricing continues to be a focus area for tax authorities worldwide, investing in proper expertise and preventative measures is not just advisable but essential for multinational enterprises seeking to navigate the complex global tax landscape.

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