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Transfer Pricing seminar by Tax Office of the Major Corporations Teksti: Antero Joutsi & Eric Sandelin

The Tax Office of Major Corporations (Konserniverokeskus) arranged an international Transfer Pricing seminar in September. There were several speakers representing for example the Finnish, US and Canadian tax authorities and also representatives from the OECD and European Commission.


he agenda of the seminar very much focused on intangibles and the OECD’s Revised Discussion Draft on the Transfer Pricing Aspects of Intangibles, which was published in July 2013. However also certain other interesting issues were discussed and are presented in this article. In the seminar the representatives of the Finnish tax administration pointed out that there are budget needs requiring actions also from tax authorities in order to collect more revenue. As stated also by many of the speakers, a special focus area for example in tax audits is transfer pricing and alleged tax avoidance. Companies have seen increased tax audit activity and experienced tax authorities having a more aggressive approach to different business transactions and business models. Finnish representatives of the tax administration also argued that the OECD Transfer Pricing Guidelines justify re-characterization of structures and transactions for tax purposes. This is a controversial view, which has also been challenged by the administrative court. Overall most of the speakers agreed that intangibles are a difficult area in transfer pricing and that there is room for different interpretations when trying

to identify intangibles, considering the contributions of related parties engaged in for example developing and maintaining the intangibles and understanding the nature of the controlled transactions. It is clear that the legal ownership is not the only, nor even the most important factor, when determining how the intangible related return should be attributed between the parties. Speakers discussed the importance of different functions like developing, maintaining, emphasizing and protecting (DEMP) the intangibles when trying to analyze what is the “appropriate” return on performing those functions or assuming the associated risks. One issue is what would be the appropriate return for the party financing those different functions. Would it be return on capital invested, but not more? One other very current topic, which was discussed in the seminar, is the OECD’s reports (published 2013) Addressing Base Erosion and Profit Shifting (BEPS) and Action Plan on Base Erosion and Profit Shifting. If we simplify a bit, the purpose of OECD’s work on BEPS is to secure revenue and tackle structures and arrangements, which are technically legal, but, allegedly, focus in taking advantage of asymmetries in domestic

Lisätietoja Antero Joutsi / Siirtohinnoittelu P: 020 760 3830  /  E: Eric Sandelin / Siirtohinnoittelu P: 020 760 3693  /  E:

30 / Tax View

and international tax rules. Here transfer pricing is seen as one of the key areas. Regarding transfer pricing, special focus is in intangibles, risks and capital and high risk transactions. Introducing more stringent transfer pricing documentation rules seems to be one of the items in OECD’s action plan. When discussing BEPS, the representative of US Tax Administration (Mike McDonald, U.S. Department of the Treasury) stated that in the US tax planning is not regarded as a moral issue. The US approach is that if governments are not happy with the results under the laws, they must change the laws. McDonald also pointed out that the OECD’s report on BEPS contains language, which can (and likely will) be interpreted differently by different countries. One example he mentioned was the term “value creation” which is not consistent with the Functional Analysis approach adopted by OECD Transfer pricing Guidelines. One thing the seminar illustrated very well is that both globally and in Finland transfer pricing is seen as one of the key areas by tax authorities when they are trying to secure the revenue. Tax authorities are having a more and more sophisticated, and more aggressive, approach when investigating pricing of intra-group transactions and business structures. This will further increase the amount of tax disputes with authorities in different jurisdictions. Therefore, it is important that companies consider in advance that the business decisions made are defendable for example in tax audits and that they are prepared to defend themselves before the tax authorities.

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