Transfer pricing windfall for tax authority
Tax authorities have netted an additional 15 billion kroner from multinational companies engaged in transfer pricing.
The latest report from Skat is due to be published later this week and shows that 32 companies had their taxable income increased by 15.3 billion kroner in total last year.
In comparison, Skat increased income estimates for companies seen to be involved in transfer pricing by 8.7 billion kroner in 2008.
By law, multinational companies that buy and sell goods, patents or services from another arm of the company must do so at market value. Tax authorities have traditionally had difficulty following the complex paper trail of goods or services sold at artificially high or low prices to transfer company profits to a country with lower tax limits.
But tax minister Troels Lund Poulsen is pleased by the concerted efforts of Skat to crack down on potential cheats in Denmark, although he admitted that they may be lacking in resources to carry out the work effectively.
‘These figures confirm that we have even more to do, which is why I will set out an action plan during the summer to see if we have the number of employees that we need,’ Poulsen said.
In 2005 Skat increased taxable income for dozens of companies to the tune of 900 million kroner and sociology professor Bent Greve of Roskilde University says there are a number of reasons for the significant increase in transfer pricing crackdowns by Skat.
‘It’s partly because there’s even more companies that own firms in foreign countries and as a result even more transactions. It’s also partly due to Skat paying more attention to the area than authorities previously had as there were too few people to investigate it,’ Greve said.
But the Danish Confederation of Industry’s deputy director general Tine Roed said that the companies penalised for transfer pricing are not necessarily setting out to cheat the tax man.
‘It’s incredibly hard for companies to value goods that are traded internationally, but internally within the company. It’s easy enough with a good that is also being sold on the market and therefore you know the price of. But what should the value of a patent or a pharmaceutical project in testing phases be?’ Roed questioned.
The tax minister, meanwhile, doesn’t doubt that some companies have been using some creative accounting.
‘Companies also have very intelligent advisers. So some will do deals to try and pay less tax and of course, we will go after them hard,’ Poulsen said.