Multinational companies cheating the taxman

Record number of under-reported cross-border transactions costing state billions

Some 77 multinational companies operating in Denmark under-reported the value of transfer pricing, cross-border trades and other similar deals. The companies enriched their own coffers by 17 billion kroner via the internal deals that should have sent 4.2 billion to the treasury.

Transfer pricing happens when two related companies – a parent company and a subsidiary, or two subsidiaries controlled by a common parent – trade with each other. When the companies set the price for the transaction, they are engaging in transfer pricing.

Transfer pricing is not illegal in itself. What is unlawful is transfer mispricing.

Ten more cases were investigated last year than the year before. The cases are complex and tough to investigate, often involving intangible assets like patents, licences and other rights.

Complex cases
National tax service SKATis taking a hard look at Microsoft and Novo Nordisk in particular.

According to SKAT, both companies – and at least 75 others – have made billions of untaxed kroner by moving patents and other rights out of their Danish subsidiaries without providiing the proper accounting to the tax authorities.

The rules state that those values should be priced at realistic market values when moved between subsidiaries across national borders.

“These are complex matters, so we would like to help companies make sure they follow the rules correctly the first time,” Morten Østergaard (R), the tax minister, told DR Nyheder.

“Most global trade is carried out among these groups, so we must make sure that large companies are paying the required amount of taxes.”