Mærsk Oil and Gas Faces Danish Tax Agency in Transfer Pricing Dispute

In a continued legal saga, Mærsk Oil and Gas, now a subsidiary of French company TotalEnergies, is set to lock horns with the Danish Tax Agency over a protracted transfer pricing (TP) dispute. At the heart of the matter is the classification of specific transactions involving subsidiaries, a pivotal determination as these transactions are required to adhere to the arm's-length principle (ALP).

As the legal battle rages on, the Danish Supreme Court is gearing up to potentially provide a resolution to this contentious issue. The crux of the case revolves around Section 2 of Denmark's Tax Assessment Act, which mandates that transactions between affiliated companies must align with the ALP. Mærsk Oil and Gas asserts that its dealings with subsidiaries based in Algeria and Qatar adhere scrupulously to Danish legal norms.

Scheduled from August 23 to August 25, the imminent legal proceedings have the potential to bring an end to years of courtroom confrontations. The outcome holds significant weight as it could set a precedent in delineating the scope of controlled transactions and their conformity with the arm's-length principle.

This legal clash arrives over a year after the High Court of Eastern Denmark dismissed the tax agency's TP assessment on March 28, 2022. Nevertheless, the agency swiftly filed an appeal barely a month later, prolonging the protracted dispute.

The origins of this dispute trace back to 2012 when the Danish Tax Agency contested Mærsk's TP arrangements pertaining to specific transactions that spanned from 2006 to 2008. Central to the issue is Mærsk Oil and Gas's issuance of a know-how license agreement to subsidiaries operating in Algeria and Qatar. During the relevant years, these subsidiaries exercised their license rights to extract oil.

Mærsk Oil and Gas contends that these transactions were not controlled, asserting that the license agreements conformed to the arm's-length principle. Conversely, the Danish Tax Agency argues that the transfers with the subsidiaries indeed constitute controlled transactions and must therefore adhere to the ALP.

Throughout the course of this dispute, the Danish Tax Agency has voiced concerns about the taxpayer's alleged use of an aggressive TP strategy aimed at diminishing its tax liabilities within Denmark. The agency argues that the group's provision of know-how to subsidiaries, coupled with the nature of performance guarantees and assistance provided, qualifies as controlled transactions.

The impending verdict carries significance not only for Mærsk Oil and Gas but also for the broader discourse on transfer pricing regulations and practices. The ruling could establish a legal framework for defining controlled transactions and ensuring their alignment with the arm's-length principle, a principle widely recognized in international tax law.

This ongoing legal duel exemplifies the intricate and evolving terrain of international taxation. The verdict's implications may extend beyond this specific case, potentially influencing future transfer pricing practices and legal interpretations. As regulatory scrutiny intensifies, multinational entities may navigate a transformed landscape for structuring and defending their transfer pricing arrangements.

By fLEXI tEAM