Dissertationen zum Thema „Transfer of commercial establishment“

There are many Swedish companies active on the Chinese market, since China’s accession to the WTO the year 2001 China has gotten even more interesting. China’s WTO accession does not only make it easier for Swedish companies to be present in China, it also provides Chinese companies an increased opportunity to access the Swedish market. Currently Chinese companies active in Sweden only counts for a small share of the total amount of the foreign companies present in Sweden, while there are several Swedish companies present in China.

The Chinese legislation for the various entities is extensive. Just as in Sweden, China applies a civil law system with a written constitution. While China is a communistic one-party state Sweden is democratic nation with several parties. The communistic legacy is reflected in the Chinese legislation. There are several types of entities that appeals to a foreign investor in the Chinese legislation while there in the Swedish legislation only exist one kind of entity that counts as a legal person with limited liability. In both nations there exists the possibility of establishing a Representative Office however it is not allowed to conduct any kind of profit making business. There is in neither state any severe obstacles from establishing a company, there is only a demand for residency within the EEA in the Swedish legislation. According to many Swedish companies present in China it seems that bureaucracy in China is the major difficulty, it is perceived as complicated and time-consuming

For foreign companies it is important to respect the culture in the foreign country. The Chinese culture is different from the western and there are some concepts that are valuable to be familiar with. Guanxi can be compared to having a powerful network which may perform miracle with the time-consuming Chinese bureaucracy and mianzi which is more than just having a good reputation. How the company is perceived is highly important in China.

Utgångspunkten för denna magisteruppsats är en komparativ studie av internationella riktlinjer för dokumentation av internprissättning.

Internprissättning reglerar hur närståendetransaktioner inom internationella koncerner skall värderas. Då de inblandade parterna står i intressegemenskap med varandra kan villkoren bakom transaktionerna skilja sig från vad oberoende parter skulle kommit överens om. Det är därmed svårt att bestämma ett korrekt pris på de besläktade transaktionerna, varför internpriser skall bedömas i enlighet med armlängdsprincipen.

För att kunna bevisa att aktuella transaktioner gjorts på armlängds avstånd måste en internationell kon-cern upprätta dokumentation som visar hur priserna bestämts och varför de skall anses vara armlängdsmässiga. Dokumentation är därmed ett försök att bestämma internpriser i överensstämmelse med armlängdsprincipen.

Trots att armlängdsprincipen följs av de flesta skattemyndigheter i bedömningen av internpriser, appliceras den på olika sätt. Kravet att möta flertalet olika nationella regelverk skapar ökade kostnader för de internationella företagsgrupperna. De löper dock stor risk att bli utsatta för dubbelbeskattning eller dokumentationsrelaterade sanktioner om de inte uppfyller respektive lands krav.

För att underlätta den administrativa bördan samt de kostnader som uppstår har OECD utvecklat rikt-linjer gällande internprissättning, “The OECD Transfer Pricing Guidelines”, där kapitel V reglerar do-kumentation. Riktlinjerna grundar sig på principer om en sund företagsanda (prudent business manage-ment), vilket betyder att skattemyndigheters behov av information skall vägas mot den kostnad och börda det innebär för skattebetalaren att samla in eller upprätta dokumenten.

PATA och EU har i respektive handelsområde försökt harmonisera de nationella dokumentationskraven genom att presentera nya internationella föreskrifter inom ramen för OECDs riktlinjer. I en strävan att efterfölja den internationella utvecklingen vad gäller dokumentation av internpriser har Sveriges Regering gett ut en proposition där införande av nationella dokumentationskrav för internprissättning föreslås.

Ett grundläggande problem gällande det aktuella området är de olika synsätten på armlängdsprincipens fastställande. Harmonisering av endast dokumentationskrav kan därför inte ensamt lösa problemen med armlängdsmässig internprissättning. Vidare innebär de utvärderade instrumenten en harmonisering på högsta nivå, varför syftet att underlätta skattebetalares börda och kostnader ej heller uppfylls.

In this master thesis a comparative study is made regarding the international guidelines on transfer pricing documentation.

International transfer pricing deals with the valuation of intragroup crossborder transactions. As the involved parties share interests to such an extent that the terms and conditions of their transactions could differ to what unrelated parties would agree on, it is complicated to properly price the controlled transactions. The transactions are therefore to be determined in accordance with the arm’s length principle.

In order to show the arm’s length nature of controlled cross-border transactions an MNE must provide transfer pricing documentation demonstrating how the prices have been determined and why they are at arm’s length. Documentation is thus an endeavour to determine transfer prices in accordance with the arm’s length principle.

Even though the arm’s length principle is used by most tax authorities when regulating transfer prices, the application of the principle differs. This imposes massive compliance costs for MNEs trying to meet the transfer pricing documentation requirements of numerous jurisdictions. However, the MNEs are at great risk of being exposed to double taxation or documentationrelated penalties if they do not meet the above mentioned documentation requirements.

In order to ease the burden on MNEs, OECD has developed transfer pricing guidelines wherein Chapter V deals with the problems of transfer pricing documentation. The OECD Transfer Pricing Guidelines on documentation are founded on the principles of prudent business management, which means that the tax authorities´ need for information should be balanced by the cost and burden for the taxpayer of obtaining or creating the documents in question.

PATA and the EU have, by presenting new international frameworks, tried to harmonise national documentation requirements for their respective trade areas within the limits of the OECD Transfer Pricing Guidelines. In an attempt to follow the international developments regarding transfer pricing documentation, the Swedish Government has proposed a draft bill for national rules on documentation.

A fundamental problem within the area is the different approaches in assessing the arm’s length principle and harmonisation of documentation in itself cannot solve this issue. Moreover, since the evaluated frame-works signify harmonisation on the highest level, the efforts to ease the compliance burden for taxpayers cannot be reached.

The purpose of this master’s thesis is to explain and analyze whether today’s existing regulations provide sufficient guidance on how to apply the Profit Split Method (PSM) in practice. Since the enterprises’ profits arising from intra-group transactions increases, the tax base for any government also becomes larger and more important. This issue will likely become even more problematic as the globalization branches out and the majority of the global trade is undertaken between associated enterprises.

In order to satisfy all parts and serve the dual objective of securing an appropriate tax base in each jurisdiction and avoiding double taxation, one ambition of the OECD is to harmonize the transfer pricing rules and make them become more uniform. An area in which this goal can be accomplish is at an international level such as the OECD; an important developer in the field of transfer pricing. Different transfer pricing methods has been developed which can be applied by both taxpayers and tax authorities to determine a correct transfer price. Six of these methods has gained international acceptance, although to a more or less extent among various countries, and one of these methods is the PSM. In the years between 1979 and 1995, the OECD had a reluctant standpoint of accepting the application of any transfer pricing method based on profits, such as the PSM. This hesitant viewpoint changed in the existing TPG which explicitly stipulates that the PSM could provide a transfer pricing estimation in accordance with the ALP, which should be accepted in exceptional cases.

There are certain situations where a PSM possibly will provide the most appropriate arm’s length result. Since the principle of economics can create complex business environments of both vertical and horizontal integration, contributions of valuable intangibles on both sides of the cross-border transaction, the PSM might be the only method which can be employed. A relevant issue which need to be enlightened is whether the existing guidance provided by the OECD and USA is sufficient from a practitioners and tax administration point of view, or is more guidance needed to better understand the issues surrounding the concept of the PSM. The fact that OECD insist of using comparables to the highest extent as possible when employing the PSM entails practical problems, since it is rather a rule than an exception that reliable comparables cannot be found when valuable intangibles are involved.

The Arthur of this master’s thesis has identified three key conclusions which might facilitate how PSM issues can be handled in the future and improve the existing PSM guidance. These conclusions are the need for a uniform PSM interpretation, the need for additional flexibility and acceptance, and the need for additional TPG guidance.

Business profits constitute the main part of income derived through international business and these profits are only to be taxed in the home state of the enterprise. However, if the enterprise conducts business in a host state through a PE, the profits attributable to the PE are taxable in the host state. Article 7 of the OECD Model Tax determines the profits attributable to the PE.

Nevertheless, Member States have interpreted Article 7 of the OECD Model Tax Convention in various ways. In order to provide consensus the OECD adopted an authorised OECD approach for attributing profits to PEs.

The first part of the purpose of this thesis is to study the Swedish approach for attributing profits to dependent agent PEs in relation to the authorised OECD approach. An enterprise from the home state can be considered to have a dependent agent PE in the host state if it conducts business in the host state through a dependent agent located therein. This is provided that the agent has the authority to conclude contracts in the name of the enterprise and exercises this authority regularly.

Under the authorised OECD approach for profit attribution to dependent agent PEs it is possible to allocate profits to the PE in excess of the arm’s length remuneration paid to the dependent agent. Thereby, the OECD has adopted the dual taxpayer approach as the authorised OECD approach.

According to the author’s opinion the Swedish perspective regarding profit attribution to dependent agent PEs differs from the authorised OECD approach as the dual taxpayer approach so far has not been applied in Sweden. Furthermore, it differs as the attribution of capital to PEs is not allowed according to case law and as far as the recognition of internal dealings is concerned.

When the OECD adopted the dual taxpayer approach as the authorised OECD approach another method was available; the single taxpayer approach. In line with this approach no further profits in excess of the arm’s length remuneration to the dependent agent can be attributed to the dependent agent PE. However, the single taxpayer approach was rejected as the authorised OECD approach, which has lead to disagreement within the international tax community.

Therefore, the second part of the purpose of this thesis is to study to what extent the authorised OECD approach is sustained. This is done by analysing reactions to the single and dual taxpayer approach among business and academic circles.

The author believes that reactions against the dual taxpayer approach mainly arise in situations when an enterprise in the host state gives rise to a dependent agent PE. Therefore, the authorised OECD approach should have recognised that different types of dependent agent PEs might arise and the approach is only sustained to the extent that a person belonging to the foreign enterprise leads to the existence of a dependent agent PE.

This master’s thesis discusses and analyzes difficulties in transfer pricing methods’ applicability to intangibles. With basis from the OECD Transfer Pricing Guidelines and the U.S. regulations, this thesis investigates applicable methods in legislation, theory, recommendations, case law and how they are applied in practice.

The OECD Guidelines do not provide an exact solution to the valuation of a transfer of intangibles between controlled parties. It refers to the arm’s length principle to determine whether the price set for a transfer between controlled parties is the same, as unrelated parties would have paid, under the same circumstances.

The best method rule used in the U.S. has no preferred order of application although it provides specific methods to be applied to intangibles. In the U.S., as in most countries (and recommended by the OECD), the Comparable Uncontrolled Price/Comparable Uncontrolled Transaction methods are considered most reliable if comparables can be identified.

The profit split method is recommended if there are no comparable transactions available and is applicable to non-routine intangibles. Other methods that require comparables are however used in the application of the profit split method to set an arm’s length price on routine functions. This method will probably become more popular in the future since it is not as dependent on comparables as most other transfer pricing methods.

There are several other methods and approaches to the arm’s length principle, which shows the complexity of intangibles and the ambition to find some form of standard.

This master’s thesis has identified the problems with most of the methods applied to intangibles relying on comparables to some extent. The comparability factors concerning intangibles are a problem, as they are difficult to apply strictly and a frequent problem is the limited access to information. A majority of available agreements published in databases are strongly focused on U.S. based enterprises transactions and rarely disclose all the required details. As a result, the comparables used become less reliable since the geographical area, size of the enterprise and functions compared seldom are comparable with the tested party or transaction. In some industry sectors, it is almost impossible to find independent comparables, especially for non-routine intangibles.

The discrepancy between theory and practice is shown through the usage and acceptance by tax authorities and courts, of comparables without sufficient comparability. This simplified and practical approach to transfer pricing derives from the limited availability of information and the need to avoid unreasonable requirements on the MNEs to produce transfer pricing benchmarking in particular and documentation in general.

Denna magisteruppsats diskuterar och analyserar svårigheterna med internprissättningsmetoders tillämplighet på immateriella tillgångar. Med utgångspunkt från OECD:s riktlinjer och de amerikanska reglerna, undersöker denna uppsats lagstiftningen, teorin, rekommendationer och rättsfall rörande tillämpliga metoder och hur de tillämpas i praktiken.

OECD:s rekommendationer ger ingen direkt lösning på värderingen av transaktionen av immateriella tillgångar mellan parter i intressegemenskap. Den hänvisar till armlängdsprincipen för att avgöra huruvida priset på en transaktion mellan kontrollerade parter är samma som okontrollerade parter skulle ha betalat under samma omständigheter.

Best method rule som används i USA ger inget krav på i vilken ordning metoderna ska användas även om den omfattar särskilda metoder som skall tillämpas på immateriella tillgångar. I USA, liksom i de flesta länder (och rekommenderat av OECD), anses Comparable Uncontrolled Price/Comparable Uncontrolled Transaction metoderna vara de mest tillförlitliga om jämförbara transaktioner kan identifieras.

Profit split metoden rekommenderas om det inte finns några jämförbara transaktioner tillgängliga och kan användas på icke rutinmässiga immateriella tillgångar. Andra metoder som kräver jämförbara transaktioner används dock vid tillämpningen av profit split metoden för att bestämma ett armslängdsmässigt pris på rutinmässiga funktioner. Denna metod kommer troligen att bli mer populärt i framtiden eftersom den inte är lika beroende av jämförbara transaktioner som de flesta andra internprissättningsmetoder.

Det finns flera andra metoder och strategier för att bestämma ett armlängsmässigt pris vilket visar immateriella tillgångars komplexitet och ambitionen att hitta någon form av standard.

Denna magisteruppsats har påvisat problematiken med att de flesta metoder som tillämpas på immateriella tillgångar använder i viss utsträckning jämförbara transaktioner. Kompabilitetskraven på de jämförbara immateriella tillgångarna utgör ett problem eftersom de är svåra att tillämpa strikt och ett återkommande problem är den begränsade tillgången till information. En majoritet av de tillgängliga avtalen publiceras i databaser som är starkt fokuserad på amerikanska företags transaktioner och sällan ges alla nödvändiga uppgifter. Detta resulterar i sämre tillförlitlighet på de jämförbara transaktionerna, eftersom det geografiska området, storleken på företagen och dess funktioner sällan är jämförbara med de testade parterna eller transaktionerna. I vissa branscher är det näst intill omöjligt att hitta oberoende jämförbara transaktioner, särskilt för icke-rutinmässiga immateriella tillgångar.

Skillnaden mellan teori och praktik visas genom användandet, skattemyndigheters och domstolars accepterande, av transaktioner utan tillräcklig jämförbarhet. Detta förenklade och praktiska tillvägagångssätt beror på den begränsade tillgången på information och behovet av att undvika orimliga krav på multinationella företag att producera jämförbarhetsanalyser och dokumentation till internprissättningen

Abstract

The freedom of establishment in Articles 43 and 48 EC is a fundamental freedom within the EU meaning that companies are free to set up secondary establishments in any other Member State. The freedom of establishment is an important means to achieve the com-pletion of the internal market and therefore it is important that this freedom is protected. Member States are obliged to legislate in accordance with the objectives of the fundamental freedoms, still Member States are restricting Articles 43 and 48 EC by applying discrimina-tory national legislation regarding direct taxation. In the Cadbury Schweppes judgment from September 2006 the ECJ found the British CFC legislation to be contrary to Community law. The purpose of CFC legislation is to prevent tax avoidance by conferring additional tax upon companies having subsidiaries in low tax states. According to the judgment in Cadbury Schweppes, if the CFC rules are too general in its application they are violating the freedom of establishment. Hence, the CFC legislation must be aimed specifically at “wholly artificial arrangements” aimed at circumventing national tax normally payable. Therefore it is of importance, in the context of applying CFC rules, to clarify the difference between use and abuse of freedom of establishment. It is also important to note that the CFC rules ap-ply even when a subsidiary is established outside the EU.

The concept of abuse of Community law has been developed through case law and prohib-its companies to improperly use the provisions of Community law in order to circumvent national legislation. Even if an establishment in another State is made to avoid tax in the State of origin, it is not necessarily abuse of the freedom of establishment since companies are allowed to choose to establish subsidiaries in the Member States with least restrictive rules. The ECJ stated that establishing subsidiaries with the sole purpose to benefit from the lower tax regime do not constitute an abuse of the freedom of establishment as long as the subsidiaries pursue genuine economic activity. The criteria for what is regarded as eco-nomic activity has been discussed in both value added tax and direct tax cases. The re-quirements so far is that the subsidiary established has to be physically present in the host State on a durable basis and have staff and equipment to a certain degree. The ECJ has as-sessed the criteria similarly in value added tax and direct tax cases and stated that the activ-ity has to be considered per se and without regard to its purpose or result. The activity also has to be based on objective factors and be ascertainable by third parties.

The Cadbury Schweppes case is the first case in the area of CFC legislation and the Court has provided little guidance regarding what constitutes a “wholly artificial arrangement”. As a consequence of this judgement some Member States have already changed their CFC legis-lation to comply with Community law. Nevertheless, there are cases pending before the ECJ that are further questioning the application of CFC rules and how to define a “wholly artificial arrangement”. The judgement of these cases may result in more changes in the na-tional legislation of the Member States. The future development of the difference between use and abuse of freedom of establishment is important for the protection of the principle of legal certainty. A clarification of what constitutes a “wholly artificial arrangement” will improve the foreseeability for companies and their cross-border transactions will be more efficient.

Sammanfattning

Etableringsfriheten i artiklarna 43 och 48 EG är en av de grundläggande friheterna inom EU som innebär att företag är fria att etablera dotterbolag i andra medlemsländer. Etable-ringsfriheten är ett viktigt medel för att uppnå målen med den gemensamma marknaden och därför är det viktigt att denna frihet respekteras. Medlemsländerna är skyldiga att lag-stifta i ljuset av de grundläggande friheterna, trots det finns diskriminerande skattelagstift-ning som strider mot artiklarna 43 och 48 EG. I Cadbury Schweppes domen från september 2006 fann EG-domstolen att de brittiska CFC reglerna strider mot gemenskapsrätten. Syf-tet med CFC regler är att förhindra skatteundandragande genom att löpande beskatta in-komster från dotterbolag etablerade i lågbeskattade länder. CFC regler som tillämpas gene-rellt är enligt Cadbury Schweppes domen i strid med etableringsfriheten. Därmed måste CFC reglerna tillämpas specifikt på ”konstlade upplägg” som har som enda syfte att undvika na-tionell skatt. Det är därför viktigt att klargöra skillnaden mellan bruk och missbruk av eta-bleringsfriheten. I detta sammanhang är det viktigt att poängtera att CFC reglerna är till-lämpliga även på dotterbolag som är etablerade i ett icke-medlemsland.

Konceptet om missbrukande av EG-rätten har utvecklats i praxis och förbjuder företag att missbruka bestämmelserna i gemenskapsrätten för att kringgå nationell lagstiftning. Även om ett dotterbolag har etablerats i ett medlemsland enbart för att utnyttja den låga skatteni-vån är det nödvändigtvis inte missbruk av etableringsfriheten eftersom företag har rätt att etablera dotterbolag i det land som är mest fördelaktigt ur skattehänseende. EG-domstolen har fastställt att etablering av dotterbolag enbart för att utnyttja en mer fördelaktig skattere-gim inte utgör missbruk av etableringsfriheten om dotterbolaget bedriver verklig ekono-misk verksamhet. Kriterierna för vad som anses utgöra verklig ekonomisk verksamhet har diskuterats i såväl mervärdesskatterättsliga som företagsskatterättsliga mål. Hittills uppställ-da krav är att det etablerade dotterbolaget måste vara varaktigt fysiskt närvarande i värdsta-ten samt till en viss grad ha personal och utrustning så att tredje part kan förvissa sig om dess ekonomiska verksamhet. Utvärderingen av den ekonomiska verksamheten måste ske självständigt utan hänsyn till dess syfte och resultat.

Cadbury Schweppes är det första målet angående CFC lagstiftning och EG-domstolen har endast tillhandahållit begränsad vägledning om vad som utgör ett ”konstlat upplägg”. Som en konsekvens av denna dom har några medlemsländer redan ändrat sin CFC lagstiftning så att den överensstämmer med EG-rätten. Icke desto mindre finns det en del oavgjorda mål som ytterligare ifrågasätter CFC reglernas tillämpning och definitionen av ”konstlade upplägg”. Avgöranden i dessa mål skulle kunna resultera i att medlemsländerna måste göra ytterligare ändringar i sin lagstiftning. Den framtida utvecklingen av vad som är skillnaden mellan bruk och missbruk av etableringsfriheten är viktig för rättssäkerheten. Ett klargö-rande om vad som utgör ett ”konstlat upplägg” kommer att öka förutsebarheten för före-tag vilket leder till en effektivisering av deras gränsöverskridande transaktioner.

It was assumed in the mid 1990s that 60% of all global trade took place within a group of enterprises. With increased globalisation leading to an increase in mergers and acquisitions this figure is most likely higher. Thus intra-company and intra-group transactions form a major part of business. These transactions, due to the association between the enterprises, may not always reflect the conditions that a market with independent actors would dictate. There are various reasons for this, which include not only tax considerations but also difficulties in establishing conditions that reflect those that inde-pendent companies would apply, in other words conditions in accordance with the arm’s length principle. In cases where these conditions are not in accordance with what the state considers as an arm’s length price, the profits of the enterprise located in that state may be adjusted for taxation purposes under transfer pricing provisions.

The complexity of transfer pricing rules and the various methods for establishing an arm’s length price result in different interpretations and increased uncertainty for multinational enterprises that often face different rules for determining a correct transfer price. Therefore, enterprises may often face transfer pricing adjustments of their profits due to the complexity and differences in transfer pricing legislation. Transfer pricing adjustments potentially lead to unresolved double taxation, in fact business reports have indicated that 42% of the transfer pricing adjustments lead to double taxation. Therefore it is imperative to have legal mechanisms that resolve potential double taxation.

The Convention on the Elimination of Double Taxation in Connection with the Adjustment of Profits of Associated Enterprises (Arbitration Convention) was adopted to give the multinational enterprises, facing double taxation due to adjustments of their profits, a remedy that obliged the states to resolve the double taxation. This was the first, and is still the only, EC-wide mechanism that technically guarantees that transfer pricing double taxation is resolved and thus holds a great improvement over other existing mechanisms to resolve double taxation. The Arbitration Convention was originally a proposed EC Directive but was transformed into a intergovernmental convention. This has resulted in that the European Court of Justice (ECJ) has no jurisdiction to interpret the Arbitration Convention or its application. Furthermore there is no supranational or international organ that could take action against states that interpret or apply the Conven-tion in an unintended manner. The chosen legal form has also resulted in different interpretations as to what status the Arbitration Convention has compared to bilateral tax conventions, and thus whether it precedes them. This could prove troublesome when future bilateral treaties are concluded or where there already exist tax treaties that have different solutions to transfer pricing related double taxation.

The risk of the Convention being interpreted differently is greatly increased by the various undefined terms and lack of precise provisions in the Convention. Therefore, the Convention has been subject to an inconsistent application and interpretation from the date it came into effect in 1995. The Convention was only given a five year life span, after which it was destined to be renewed if the contracting states so expressed, involving the same ratification process as at the initial acceptation of the Convention. However, as this was inefficient, a Prolongation Protocol was signed to amend the Convention with an automatic extension of its life. As it took till 2004 for this Protocol to be ratified and finally enter into force on 1 November 2004 it created one of the main interpretation and application differences in the life of the Convention.

The function of the Convention’s procedures and thus its efficiency in resolving double taxation is impeded by the numerous interpretation differences and lack of precise pro-visions in the Convention. The fact that there is no way to guarantee that the provisions of the Convention are precisely followed, partly since there are uncertainties regarding the precise interpretation but also partly since there is no organ that could enforce a uniform application of the Convention, further impedes the efficiency of the Convention, which is clearly seen in practice.

Another question of interpretation and application raised is that, although the Convention was originally intended as a means for resolving transfer pricing related double taxation, there have been arguments that the Convention could apply to double taxation due to provisions concerning thin capitalisation as well. These provisions bring about similar conditions as those the Convention requires for its applicability and, although a different area of law, the connections in the conditions are many and undeniable.

This master’s thesis has analyzed the issues multinational enterprises (MNE) have when determining the arm’s length price from intra group services rendered from a group service center (GSC). The thesis is based on the recommendations from the Organization for Economic Co-operation and Development (OECD), and the legislations in Sweden, Germany, USA, and Denmark. There are several factors that could cause issues for services rendered from a GSC.

GSCs render services to the members of a MNE. These types of services are often managerial, supervisory, marketing, or other kinds of services, which are preformed more efficiently if centralized in the MNE rather than if each member of the MNE would perform the services themselves. The research has shown three specific issues that have caused problems for MNEs: When is a service chargeable? Is the applied method for charging appropriate? And, how should the remuneration be determined? The concerned countries have different rules and regulations towards dealing with these issues, which have caused problems for MNE operating in these countries.

There is no other category of transaction that has caused as much disagreement between taxpayers and tax authorities as intra group services. Countries seem to have different approaches towards when services are chargeable, which in situations create disputes between taxpayers and the countries’ tax authorities.

The appropriate method for charging is dependent of the concerned countries. Three of the countries have a negative attitude towards indirect charging, while one has no preference. Consequently, this has caused problems for MNE to price services.

Three of the countries apply the OECD’s recommendations, when determine the appropriate pricing method. OECD has a hierarchy of the methods, whereas USA applies the best method rule, which means that they have no preference over a certain pricing method. The most common methods for pricing services are the cost plus method and the transactional net margin method. However, there are situations where some of the countries do not approve a profit element in the charge. In these situations, the OECD‘s recommendations do not provide a clear and straight answer, whereas the US Regulations have very strict and clear regulations when a service should be charged without a profit element.

There could be many factors to why countries have different interpretations: ambiguous recommendations from the OECD; subjective opinions from governments, tax authorities and courts; protectionism; language barriers; accounting standards; the differences in the legal value of the OECD recommendations; and probably other factors which has not been considered. Inferentially, the OECD should be more open to a “US approach”, by giving more clear, precise and direct recommendations. A “US approach” gives more predictability to practitioners. Direct, clear and precise recommendations will give less room for interpretation, thus, less confusion in practice. Even if this has to be accepted by countries it should lead to less confusion and hopefully decrease double taxation for MNEs.

This master’s thesis compares the OECD transfer pricing recommendations with the transfer pricing rules of the US. The main focus is the ethical pharmaceutical industry and intangible property, in particular marketing intangibles. The Glaxo case is used to illustrate how the US takes advantage of areas of uncertainty to increase the country’s tax revenue. The US shows little consideration for the OECD’s objectives of having a set of universally applicable transfer pricing rules. The purpose of this master’s thesis is to explain and analyze why the IRS took a new approach on marketing intangibles in the Glaxo case, evaluate the global effect of the Glaxo case, and discuss how similar situations should be dealt with in the future.

The natural forum to achieve universally harmonized transfer pricing rules is the OECD. When the OECD fails to provide adequate recommendations, the US and other countries take matters into their own hands by constructing rules deviating from the recommendations of the OECD. These rules tend to put the countries’ interests first creating a competitive international transfer pricing community harmful to MNEs. The consequence is a negative effect on global trade and investment.

In the Glaxo case the US took advantage of the area of uncertainty regarding intangible property and marketing intangibles to serve its own purpose and came up with a new approach on marketing intangibles. This approach has consequences for all MNEs with affiliates in the US and distributors outside the US. The new approach states that the value of a product is attributable to the marketing activities conducted by a US subsidiary rather than to R&D carried out by a UK parent. The new approach may affect distributors outside the US since the value they have can be allocated to a US affiliate conducting marketing and sales activities. The ethical pharmaceutical industry depends on intangible property and R&D is the most important value-driver in this industry. In addition, the characteristics of the ethical pharmaceutical industry are such that ethical pharmaceutical companies are priority targets of the IRS’s audits. If the IRS’s new approach prevails, the negative consequences for the ethical pharmaceutical industry as well as the society as a whole may be severe.

There are three main conclusions and recommendations in this master’s thesis. First, the Member countries of the OECD have to respect the principle of transfer pricing as neutral concept. Second, tax authorities must take into consideration the sound business reasons of MNEs and understand their need for tax predictability. Finally, it is in the interest of all countries to cooperate and establish a uniform interpretation and application of transfer pricing thereby avoiding double taxation and creating a balance in the international transfer pricing community.

Denna magisteruppsats jämför OECD:s rekommendationer gällande internprissättning med de amerikanska internprissättningsreglerna. I uppsatsen fokuserar författarna på internprissättningsproblematiken gällande immateriella tillgångar i läkemedelbranschen, med särskilt fokus på den typ av immateriella tillgångar som uppstår genom försäljning och marknadsföring (marketing intangibles). USA använder sig av områden där rättsläget är osäkert för att öka sina skatteintäkter. För att illustrera detta beskrivs och analyseras Glaxo-fallet. USA visar på så sätt lite hänsyn till ett av OECD:s viktigaste mål; att skapa en universellt harmoniserad tolkning och tillämpning av internprissättning för att motverka dubbelbeskattning och öka möjligheten för multinationella företag att förutse och planera sin skatt. Syftet med denna magisteruppsats är att förklara och analysera varför den amerikanska skattemyndigheten (IRS) valde en ny inställning till marketing intangibles i Glaxo-fallet, utvärdera den globala effekten av Glaxo-fallet och diskutera hur liknande situationer bör hanteras i framtiden.

OECD är det mest lämpliga instrumentet för att skapa en internationell konsensus på internprissättningsområdet. Eftersom internprissättning av transaktioner som involverar immateriella tillgångar och särskilt marketing intangibles utgör ett osäkert område med endast lite vägledning från OECD finns det stort utrymme för länder att skapa egna regler och rättspraxis på området. När länder som USA tar saken i egna händer och skapar sina egna regler inom internprissättning tenderar de att sätta sina egna intressen i första rummet. Konsekvensen blir en internationell internprissättningsmiljö där konkurrensen om de multinationella företagens vinster är stor, vilket skadar den internationella handeln och investeringsviljan hos företag. Det är just detta som skett i Glaxo-fallet.

Resultatet av Glaxo-fallet blev en ny inställning till hanteringen av denna typ av transaktioner, något som USA länge eftersökt för att lösa problemet med en minskande skattebas. Den nya amerikanska inställningen får konsekvenser för alla multinationella företag med företag i intressegemenskap i USA och distributörer utanför USA. USA sänder nu ut en signal att värdet av en produkt inte styrs utav de år av forskning och utveckling som krävdes för att skapa ett patent av det brittiska moderbolaget i Glaxo-fallet. Istället är det de immateriella tillgångar som uppkommer av försäljnings- och marknadsföringsaktiviteter som tillför en produkt det egentliga värdet. I Glaxo-fallet innebar detta att en majoritet av vinsten av försäljningen av läkemedlet Zantac skulle hänföras till det amerikanska dotterbolaget och därmed beskattas i USA. Inställningen innebär att distributörer utanför USA kan komma att påverkas genom att värdet de tillfört genom forskning och utveckling eller andra viktiga funktioner kan bli mindre betydelsefullt än värdet som tillförs av marknadsföring. Läkemedelsbranschen är beroende av immateriella tillgångar för att kunna fungera och forskning och utveckling är den mest betydelsefulla värdeskapande funktionen inom industrin. Företag i läkemedelsbranschen är dessutom mycket benägna att hamna i blickfånget för internprissättningsrevisioner. Om den nya amerikanska inställningen vinner mark är det mycket troligt att konsekvenserna blir allvarliga både för läkemedelsindustrin och för samhället i stort.

I denna magisteruppsats har författarna antagit tre huvudsakliga slutsatser med rekommendationer. Den första är att OECD:s medlemsländer måste respektera principen om en neutral inställning till internprissättning. Som en andra slutsats kan sägas att skattemyndigheter måste beakta de affärsmässiga skälen till de transaktioner som företas av multinationella företag och förstå multinationella företags behov av förutsebarhet beträffande beskattning. Slutligen ligger ett internationellt samarbete i alla länders intresse och en internationell konsensus gällande tolkning och tillämpning av internprissättning skapar balans och motverkar dubbelbeskattning.

This master’s thesis deals with the transfer pricing of intangibles and focuses on the U.S. standard commensurate with income. This standard has been accused of being incompatible with the overriding principle of transfer pricing, the arm’s length standard, and is not endorsed by the OECD. Recent developments on the topic include the introduction of a similar provision in Germany. The purpose is to evaluate the standard’s compatibility with the arm’s length standard and to establish the current position of the concept of commensurate with income.

To meet this purpose the thesis first describes the inherent problems surrounding transfer pricing of intangibles as well as provides a background to transfer pricing in the U.S. The focus then shifts towards the history, application and criticism of the commensurate with income standard. The thesis also gives an account of the OECD’s and Germany’s positions on the matter. In the final analysis the compatibility with the arm’s length standard is examined from two angles; the commensurate with income standard’s valuation approach on one hand and its use of hindsight on the other.

The commensurate with income standard uses an income approach to valuation of transfers of intangibles instead of the market approach recommended by the OECD. This may lead to overvaluation of intangibles and is not strictly in line with the arm’s length standard. The German commensurate with income provision is more in line with the market approach and is therefore more compatible with the arm’s length standard in this aspect.

The commensurate with income standard allows adjustments to transfer prices with the benefit of hindsight. The actual income from a transferred intangible is thus used as evidence as to whether or not the original transfer price was set reasonably. The OECD is of the opinion that only information known at the time of the transfer should be used, but makes an exception for the particular situation when a tax authority can prove that unrelated parties would have adjusted transfer prices retroactively. The point made here is that the commensurate with income standard places the burden of proof on the taxpayer, while the OECD places it on the tax authority. This allows the OECD to stay true to the arm’s length standard, while the U.S. and Germany deviates somewhat from it.

However, there is no exact manner in which to define the arm’s length standard, and even the OECD deviates from it more or less. The commensurate with income standard may be one step further away from the purest definition of it but not a complete deviation. The German version of commensurate with income manages to target the same problem while staying closer to the arm’s length standard. Germany has thereby found a middle way and might hold the solution to finding a consensus between the OECD and the U.S.

This Bachelor’s thesis focuses on those terms that, from a Swedish perspective, have to be fulfilled to entitle deduction for definitive losses in a cross-border merger situation. The thesis analyses one of the ten rulings from the Swedish Supreme Administrative Court which were published in 2009.The ruling is analysed in the light of the Treaty on the Functioning of the European Union, the merger directive and the Court of Justice rulings in Marks & Spencer and Lidl. The purpose is to examine if the Swedish rules concerning cross-border mergers is compatible with the EU-law. The Swedish rules concerning mergers are found in chapter 37 in the Swedish income tax act. To enjoy the rights of the rules in chapter 37 the merger needs to be qualified. The criterion in 11 § stands out as a clear obstacle for the deduction of losses and is therefore examined thoroughly. It states that the transferor company needs to be taxable for some kind of activity in Sweden immediately before the merger. That criterion is not fulfilled if the company is situated in another member state. In the Marks & Spencer case, the Court of Justice stated that a rule which hinders deduction for losses which is considered to be definitive could be a possible breach of the freedom of establishment. The Swedish rules concerning qualified mergers in chapter 37 in the Swedish income tax act was questioned in the case RÅ 2009 ref 13. The criterion stated in § 11 was discussed first by the Swedish tax board and then by the Swedish Supreme Administrative Court as a possible breach of the freedom of establishment. It is in my opinion clear that when a loss is definitive the loss should be entitled to deduction, thus the 11 § could therefore constitute a breach of the freedom of establishment.