<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>
| Identifer | oai:union.ndltd.org:UPSALLA/oai:DiVA.org:hj-7779 |
| Date | January 2009 |
| Creators | Godring, Björn, Wåhlin, Lisa |
| Publisher | Jönköping University, JIBS, Commercial Law, Jönköping University, JIBS, Commercial Law |
| Source Sets | DiVA Archive at Upsalla University |
| Language | English |
| Detected Language | English |
| Type | Student thesis, text |
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