<p>Marine Food group is active within the marine foodservice industry and is established in Finland, Sweden, USA and Singapore. The group both sells galley equipment and spare parts as well as carrying out installation of the marine foodservice areas in both new build vessels and in vessels where an old galley is changed into a new one. The group also provides its customers with turnkey deliveries, which are when the supplier has the overall responsibility for the delivery of a marine foodservice area. Marine Food group transfers goods and services between the enterprises situated in Finland, Sweden and the US and has not established a transfer pricing system for these transactions. The company located in Singapore was recently established and any intra-group transactions have not been conducted yet. This master’s thesis aims at developing a transfer pricing system that could be applicable on these transactions and acceptable to the tax authorities in Finland, Sweden and the US.</p><p>The elements that should be included when developing a transfer pricing system is functional analysis, economic analysis, an analysis of transactions, selection of transfer pricing method and comparables. The Marine Food group is therefore analyzed based on these elements in order to be successful in developing a transfer pricing system. Furthermore, the transfer pricing rules in Finland, Sweden and USA is examined in order to develop a transfer pricing system that is acceptable to the tax authority in respective country. The Organization for Economic Co-operation and Development has issued Transfer Pricing Guidelines, which are another significant source that are examined when establishing a transfer pricing system for Marine Food group.</p><p>Spare parts are transferred between the Swedish company, Marine Food AB and the US based company, Marine Food LLC. The transfer pricing method that should be applied in Sweden is the resale price method since Marine Food LLC operates like a reseller for the spare parts. Internal comparables exist and comparability for the purposes of resale price method can be established with reference to both internal and external data. In the US, the comparable profit method should be applied given that it meets the best method rule.</p><p>The transactions from the Finnish Company, Marine Food Oy and the Swedish company, Marine Food AB consist of installation works and stainless steel furniture. Hence, the transactions both involve goods and services and should be looked at separately. The transfer price for the installation works should be set by using the transactional net margin method. In order to determine the transfer price under the transactional net margin method both internal and external comparables can be used in this case. The transfer price for the stainless steel furniture should on the other hand be established using the resale price method. In order to determine comparability external comparables are used due to lack of internal data.</p><p>Marine Food AB sells galley equipment and spare parts to Marine Food Oy. The transfer pricing method that should be applied on these transactions is the resale price method since the least complex party in the transaction, Marine Food Oy, act like a reseller of the galley equipment and spare parts. Comparability is to be established with reference to external comparables since internal comparables do not exist.</p>

<p>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.</p><p>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.</p><p>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.</p><p>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.</p><p>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.</p><p>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.</p>

<p>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.</p><p>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.</p><p>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.</p><p>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.</p>

<p>According to the arm’s length principle, transactions between associated multinational en-terprises (MNE) shall be based on the same conditions as transactions between unrelated parties. This means that intra-group prices on cross-boarding transactions must be at arm’s length range and consistent with conditions in the open market. The arm’s length principle is expressed in article 9.1 of the OECD Model Tax Convention and Chapter 14 section 19 of the Swedish Income Tax Act.</p><p>When transfer pricing between associated MNEs is not reflecting the arm’s length princi-ple, states face the possibility of losing tax revenue. The majority of OECD member coun-tries have implemented national documentation requirements and involve enterprises to present documentation on their transfer pricing. This obligation increases the possibilities for Tax Authorities to control whether or not a company follows the arm’s length princi-ple. Chapter V of the OECD Guidelines provides general guidance in this matter. Within the EU the transfer pricing forum JTPF, has developed a standardized model for docu-mentation known as the EUTPD. Application of the EUTPD depends on the MNEs themselves but also on national requests.</p><p>The Swedish legislator intends to implement national documentation requirements through the Government Bill 2005/06:169 “Effektivare Skattekontroll”. The regulation is likely to become effective 1 January 2007. Regardless that the burden of proof still lies on the Tax Authorities, MNEs are obligated to produce documentation that will be used as evidence of their transactions. The bill is drafted as a legislative framework and the implication will be developed through further directions from the Tax Authorities. Court Law will also be significant in how the legislation is applied.</p><p>This thesis concludes that the proposed regulation is unclear and therefore stands to coun-teracts or undermines the purposes behind the legislation. Since transfer pricing is not an exact science it is logical that the regulation be proposed as a framework, which would ren-der the possibilities for extensive interpretations. However, indistinctive rules would not increase neither the awareness nor the predictability concerning transfer pricing and docu-mentation requirements. Considering that the majority of MNEs in Sweden are small and medium sized companies and not always familiar with the arm’s length principle, the legis-lator should have expressed the documentation requirements more precisely. Nonetheless, since the enquiries will most likely increase, enterprises will be forced to allocate resources on their transfer pricing and documentation. This legislation will in turn increase the aware-ness and predictability in the long-term.</p>

<p>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.</p><p>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.</p><p>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.</p><p>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.</p><p>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.</p><p>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.</p>

<p>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.</p><p>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.</p><p>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.</p><p>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.</p><p>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.</p>

<p><p>Business restructurings within multinational enterprises (MNEs) are regular occurrences. Such restructurings are often carried out in order to increase the MNE‟s competitiveness on the market by making the supply chain and management more efficient in order to ac-quire benefits due to economies of scale. There is a risk that such cross-border business re-structurings will transfer the profit/loss potential that is associated with the assets, risks and/or functions that are transferred, to low-tax jurisdictions in order to minimize the MNEs tax burden. Germany amended its tax act in order to prevent such profit potential from being transferred out of the country. This amendment came into effect on the 1st of January 2008. The OECD, which is the normative body on the international tax arena, re-leased a Discussion Draft for the public in September 2008 with the purpose to highlight the transfer pricing aspects of business restructurings and to serve as an interpretation of the application of the Transfer Pricing Guidelines on business restructurings. In this thesis, the concepts of profit/loss potential and indemnification, as they are pre-sented in the Discussion Draft, will be analyzed. The interpretation of the OECD will then be contrasted with the German and Swedish regulation of these concepts. The OECD defines a business restructuring as a transfer including a bundle of assets, risks and/or functions which are transferred across borders within a MNE. If this transfer in-volves the shift of profit/loss potential it shall be included in the valuation of the transfer price of the transactions. The profit/loss potential shall only be included if it can be identi-fied as belonging to a specific asset, risk or function of the bundle. In Swedish legislation there is only one rule which tax authorities can use in order to adjust the income of related parties. This regulation is not a specific rule for business restructurings as such but a gener-al rule for all transfer pricing matters. Sweden has traditionally followed the OECD guide-lines and the Swedish courts and tax authorities will most likely apply the guidance set out by the OECD on business restructurings as well.</p><p>Germany views a business restructuring as a transfer package which consist of assets, risks and/or functions which are transferred a cross borders within a MNE. The concept of business opportunities, i.e. the profit potential of the combined assets, risks and/or func-tions of the transfer package, shall be included in the valuation of the transfer package. In the valuation of the transfer package synergy effects for the MNE and location savings as a whole shall be included. This concept deviates from the view of the OECD. The OECD states that only local synergy effects and location savings shall be included in the valuation of the transfer package. The German approach leads to an inherent risk of overvaluation of the transfer package. The way of valuing the transfer package in Germany could lead to</p><p>taxation without realization, i.e. profits that would never have been or never could be rea-lized in Germany will be taxed. This contradicts the principle of realization. The OECD, in the Discussion Draft, gives an account for the possibilities for an indemni-fication for the transferor. A business restructuring can sometimes be compared with the breach of a contractual relationship. In such a situation, associated parties would be entitled to an indemnity if independent parties would be indemnified. Such an approach will be dif-ficult to apply in practice since indemnification is closely linked to nations national com-mercial legislation. The matter of indemnifying a party shall be decided on the merits of each case, and it can thereby be complicated to formulate a general regulation. The ques-tion regarding which authority shall be competent to govern such a matter must thereby al-so be resolved.</p></p>

<p>As the globalization of companies increases day by day, the need for a clear and comprehensible legislation to overcome the problems with transfer pricing transactions increases as well. Incorrect pricing in transfer pricing situations between companies with close economic ties to each other makes countries risk parts of their taxation income.</p><p>Swedish legislation uses the internationally accepted arm’s length principle to regulate the transfer pricing transactions. Through the correction rule, the rule is upheld that the pricing between two companies with close economic ties to each other must apply to the same conditions as it would have been if it was between two companies without close economic ties to each other.</p><p>To ensure that enough material is provided to base the assumption whether or not the correction rule has been followed or not, Swedish legislation provides a number of paragraphs to regulate the matter. The legislation is spread all over and is hard to interpret. The question rises whether this is against the rule of legal certainty or not.</p><p>The taxation authority has provided a proposition on new legislation with tougher documentation requirements where it also wants to give itself part of the power by through directions exactly define what the documentation shall include. Yet again the question is raised whether or not this is against the rule of legal certainty or not.</p> / <p>I takt med att globaliseringen av företag ökar, ökar också behovet av en klar och tydlig lagstiftning för att överkomma problemen med internprissättningstransaktioner. Vid oriktig prissättning vid transaktioner mellan företag i ekonomisk intressegemen-skap riskerar länder att gå miste om delar av sin skattebas.</p><p>Svensk lagstiftning använder sig av den internationellt accepterade armlängdsprincipen för att reglera internprissättningstransaktioner. Genom korrigeringsregeln regleras att prissättningen mellan två företag i ekonomisk intressegemenskap måste ske under samma förutsättningar som skulle ha gällt mellan två företag utan ekonomisk intressegemenskap.</p><p>För att få underlag till huruvida korrigeringsregeln har följts eller inte finns ett antal lagrum i svensk rätt som reglerar dokumentationskrav. Denna lagstiftning är spridd och anses vara svårtolkad. Frågan uppstår om detta strider mot rättsäkerheten.</p><p>Skatteverket har kommit med ett förslag på ny lagstiftning med skärpta dokumentationskrav där man dessutom vill ge sig själv delar av makten att genom föreskrifter exakt bestämma vad dokumentationen skall innehålla. Återigen väcks frågan om det-ta är förenligt med rättssäkerheten.</p>

<p>Throughout this thesis three main factors have been identified that can be out of significance for transfer pricing in multinational companies if the proposal for Home State Taxation is adopted. These factors are rules for calculation of the tax base, rules for dividing costs over periods and the tax rate. The formula for sharing profits will also become a factor that can have an impact on the European companies'incentives for transfer pricing interacting with above-mentioned factors. The effects of transfer pricing aiming at reducing the total amount of the taxation burden for a group of companies will be strongly reduced in the future if the proposal is adopted. Incentives for transfer pricing will loose importance, though not disappear altogether. Nevertheless new incentives to evade the rules may arise, especially in terms of careful choices concerning the establishment of every company in the group. The most positive effect of the proposal will probably be that the uncertainty of determining which transfer pricing rules apply will disappear, as only the system of rules of one country will be used for the calculation of the base for taxation. The double taxation, which has caused problems in the past since different rules for transfer pricing gave been applied, will disappear resulting in less costs for companies.</p>

我國於2004年底完成「營利事業所得稅不合營業常規移轉訂價查核準則」之發布作業，其中內容對於預先訂價協議亦有詳細的規範，其目的在減少移轉訂價事後查核所引發的爭議及所造成的行政負擔。鑑於我國預先訂價協議制度，與其他先進國家及中國大陸之制度有很大的不同，因此，本研究透過國內外文獻及先進國家與我國對預先訂價協議處理之比較分析來檢視我國預先訂價協議制度可能遭遇的困難及解決之道，並對與中國大陸簽署雙邊APA之可行性加以探討。 / 本研究發現我國預先訂價協議制度和國外相比較有很大不同，其中包括設定苛刻及高門檻的申請條件、裁量權極大的初審機制、而無供雙向溝通之預備會談機制、亦無專設之小組專門處理APA之申請案、雙邊或多邊APA申請程序付之闕如，以及不能追溯以前年度尚未核定之案件等。這些不同，都將是日後推廣簽訂單邊、雙邊或多邊APA之障礙。 / In the end of the year 2004, our country issued “Regulations Governing Assessment of Profit-seeking Enterprise Income Tax on Non-arm’s Length Transfer Pricing (TP Regulations).” For the purposes of reducing the disputes and administrative burden caused by the post audits relating to transfer pricing issues, there are some provisions grouped into a proper chapter for regulating an APA program in TP Regulations. In view of the big differentials of the APA programs between in Taiwan and in some other progressed countries and in Mainland China, this study is expected to view and test our APA program to see if any difficulties to be encountered and resolved through comparing and analyzing domestic and foreign publications and also studies the possibilities to conclude bilateral APA with Mainland China. / This study lists some big differentials while comparing APA program in Taiwan with that in foreign countries. Such differentials include setting some conditions severe and high threshold for application, initial examination device solely controlled by tax authorities but no prefiling conferences for developing two ways’ communications, neither proper APA teams in a tax authority nor special procedures for dealing with bilateral and multilateral APA, as well as no rollback of transfer pricing method and etc. Those big differentials will limit the future development of unilateral, bilateral, and multilateral APA in Taiwan.