Link between Transfer Pricing and Customs Union Regulations

Sammanfattning

Base erosion and profit sharing (BEPS) explain the process when multinational enterprises take advantage of the gaps, mismatches or loopholes in the international tax regulations for artificially shifting profits to lower tax jurisdictions or no tax jurisdictions. Tax avoidance strategies were legal in most cases and overlooked until the OECD G20 BEPS project was done in 2013. Multinational companies were exploiting tax outdated taxation rules and uncoordinated with the other nations. BEPS is not exactly beneficial for all parties. Governments, citizens and businesses all bear the brunt of it. The government loses required tax revenue from the largest corporations in the world, approximately 4-10% of the global corporate tax revenues which could be allocated to infrastructure, health care facilities, education, pensions etc. The population loses out by paying higher taxes for services which could be funded through the corporates or going about without those services. Domestic or home-grown businesses find it challenging to compete with multinationals that could lower their tax by shifting profits offshore. Profit shifting behaviour of multinational enterprises is no new phenomenon. Around 135 jurisdictions working together at present in the inclusive framework on BEPS. Additional to implementation of the minimum BEPS standards, they are tackling income tax challenges emanating from the digital economy to ensure that not just digitally operating businesses, but all pay a fair share of tax returns[1]. On the tax administrations’ perspective, the goal is to minimize the cost of goods sold for imported goods and thus the import prices, resulting in higher taxable profits, as direct tax income is directly related to taxable basis, which is naturally influenced by costs incurred with imported goods. Consequently, the taxation department’s interest would be to verify whether the value declared by a resident should be decreased in order to limit the tax-deductible amount. For the purposes of custom requirements, the transfer price has an explicit and outright impact on the determination of the value of the imported goods, which constitute as the base on which duties are charged. A lower transaction value means lower revenue collections. Therefore, an official working with the customs office would require himself to verify whether the value declared by an importer should be increased in order to collect more duties[2]. This discrepancy needs to be studied and eliminated for them to arrive at a consensus. Research Question: What is the relationship between the transfer pricing guidelines and EU Custom laws and how can their discrepancies be reduced? [1] OECD (2013) https://www.oecd.org/about/impact/ending-offshore-profit-shifting.html [2] Duarte Nuno Tenreiro Freitas dos Reis: The tension between Transfer Pricing and Customs Valuation, Mestrado Em Contabilidade, Fiscalidade E Finanças Empresariais (2012).