Accountants unwilling auditors in corporate tax proposal

Audit would catch companies trying to ship profits abroad to avoid paying taxes

The new governmentÂ’s plan to force multinational corporations with operations in Denmark to come clean about their taxes is meeting resistance from accountants. They say tax regulations for multinationals are sufficient and warn against unnecessarily casting suspicion on companies.

“We recommend caution when it comes to transfer pricing regulations,” said John Byholm, the chairman of the tax committee for national accountant organisation FSR. “Danish rules are tough enough as it is. Stricter laws aren’t necessary.”

The reaction comes after a proposal last week to give tax authorities more power to prevent multinational companies from avoiding the payment of taxes by shipping profits abroad. The plan would give tax authority Skat the power to call for an audit if it suspects parent companies are charging their subsidiaries in Denmark artificially high internal prices, also known as transfer prices.

Bygholm said such audits could be a “significant” extra cost for companies.

“There’s nothing wrong with increasing fines,” Bygholm said. “But companies’ accountancy costs are also going to increase. And this means that companies are going to have to pay a lot to make sure their books are balanced. Denmark is on its own in this area.”

As it is right now, the regulation would require companies to pay for the audit, regardless of what it turned up. But Bygholm called it “only fair” that tax authorities reimburse companies if an audit turned up nothing suspicious.

He also criticised the proposal for essentially requiring companies to carry out SkatÂ’s work for them.

According to government statistics, as many as half of all companies in Denmark do not pay taxes each year. Proposing the new taxation regulations, the Tax Ministry expressed concern that this figure remained constant even during the economic expansion that ended in 2008.
“It should be a sign that something needs to be done, when so many companies aren’t paying taxes, and when corporate losses can rise so rapidly during a period when the economy is doing so well,” the ministry wrote in its proposal.

Another of the concerns accountants have, according to Bygholm, is the proposal’s “imprecise” wording.

“We think it needs to specify the criteria that need to be met in order for Skat to demand an auditor’s certificate. There could be some judicial problems involved with the two criteria set out in the proposal.”

Ahead of its general election defeat, the previous government was also working on a similar proposal. Those plans called for Skat to require an audit if a company had an average net loss over a four-year period, based on its earnings before interest and taxes (EBIT).

Bygholm, however, suggested that the period should be extended to between eight and ten years.

Both proposals also mention “transactions in tax haven countries” as grounds for requiring an audit. But Bygholm said Skat should not be able to demand a review based on a suspicion of such transactions.

Published in collaboration with financial newsletter Ã˜konomisk Ugebrev.

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