In recent years, the international tax planning strategies of multinationals have become a source of – often heated – debate. This course provides learners with the tools to become fully informed participants in the debate by explaining the foundations and practice of international tax law as well as addressing current developments and the ethical aspects of tax planning.
Interview Prof. Dr. Kees van Raad
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来自 Universiteit Leiden 的课程
国际税法反思
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从本节课中
Transfer pricing
In this fourth module, we will be focusing on transfer pricing, a technique which is used to allocate the profits made by a group of companies to the individual group members. Transfer pricing is an area of tax law which is becoming increasingly important. Our study will focus on the basics of transfer pricing: the 'arm's length principle', comparability and transfer pricing methods, but will also address business restructurings and include a case study.
与讲师见面
Prof. Dr. Sjoerd DoumaFaculty of Law
International Tax Center
Hi, and welcome to the interview with Kees van Raad in module four of our course.
This module is about transfer pricing.
Kees, would you agree with me that the topic of transfer pricing is of special
importance in the current debate on tax avoidance by multinationals?
>> Transfer pricing is an issue that is not restricted to corporate situations.
It may perfectly happen also, in domestic situations.
Let's, for example, take a medical doctor, a general practitioner,
who is married to well,
a woman who is a registered nurse and he employs her in his medical practice.
And the let's say, the doctor earns, annually, 100,000 and
he's going to pay his wife a salary.
Well if the, doc, doctor is tax-wise, he may pay her a salary of 50.
because if he pays her 50, she has 50, and he has 100 minus 50, is also 50.
And together, paying tax on two times 50,
is less than when the doctor would pay tax on 80 himself and 20 for his wife.
>> Because of the progressivity in the tax bracket.
>> That's right.
The income tax progressive so here, we see that the contract, the employment
contract between the doctor and his wife, is violating transfer pricing rules.
Transfer pricing says, you gotta deal, contractually for tax purposes,
with another party on an arm's length basis.
Arm's length, not close, at a distance.
So a father who buys for a son who's studying at a university in another city,
father's going to buy a studio apartment so the the son can live there.
And the father says well, you don't have to pay me.
That's also a transfer pricing issue, because the father doesn't receive
anything, isn't going to be taxed on anything.
Why?
because he saves tax in this way,
and the son hasn't income that he can deduct a payment from, so
in this way, the father is not acting on the base of arm's length rules.
No, he should treat his son renting the apartment as having to pay
a lease payment for that.
If he doesn't do so, there's an issue.
>> And why do they have to interact with each other on this at arm's length basis?
>> Well if you don't do so, then you are manipulating the tax,
which would we due on the basis of an ordinary economic arm's length situation.
And by the doctor having his having a wife that he pays 50 instead of 20.
It's also lowering his taxes, because, you know, he manipulates the tax system.
Let's assume that you're a pharmaceuticals company, small company,
family owned and operated.
And you do a major invention, just by accident.
You don't spend a lot of money on research and development.
You do this particular event,
you are going to get a patent which is extremely valuable.
Well, would it be okay to give that patent to be used to give a license
to a family member, so the family member, so the family member will able
to amass a fortune while paying very little royalty-wise?
No.
The person should pay a royalty which is equivalent to
the amount he would pay if he would get the license from an unrelated party.
So the problem with transfer pricing is, you could redeem as if the two parties
negotiating are not related, and they are related, and that's where the issue is.
Therefore, a few days ago,
I saw on the television a documentary on international tax avoidance.
And there were complaints in the documentary about fake
royalties being paid in cross-border situations within a single multinational,
which is nonsense, of course.
When they're, when the two parties are related, they gotta determine
the level of the royalty payment as if the two parties were unrelated.
So, irrespective of whether the party that made
the invention incurred a lot of cost, that doesn't matter.
The question is, how much would a third party have paid?
And if the third party would have paid a huge amount of royalty, then the related
company should pay a huge amount of royalty to the company holding the patent.
You cannot call it a fake royalty.
So this illustrated that a very fundamental understanding about how
transfer pricing rules should work, is not there apparently.
because the program makers simply disregarded this point that was made.
>> It sounds very logical, but on the other hand,
I think that transfer pricing rules, they have become very, very complicated.
But, what, did, would you share this view?
What was the future of transfer pricing, is it sustainable?
>> Well, transfer pricing, again, deals with treating a transaction
which is concluded between parties that know one another, that are related,
to treat it as if it were a transaction between unrelated parties.
In the old days, 100 years ago,
I think the number of unrelated transactions was much greater then today.
I just read the other day that in today's world,
60% of all the international transactions are between related parties.
So it means that in 60% of today's business,
you cannot rely on the price that is charged as being a realistic price.
Because the price is between people, between companies that know one another,
that may be in a single hand.
So it's very difficult today to determine what the arm's length price is for
a particular product.
Let's simply look at an iPhone, if Apple would leave it to a third party
to sell iPhones, at what price would a third party buy such an iPhone from Apple?
Nobody has a clue.
Because there are no iPhones, of course, sold by Apple to, to third parties,
different from ordinary customers, people like you and me.
So the problem is, the today's economy, simply doesn't provide
the information anymore with the ordinary prices for, for particular goods.
Because a lot of transactions don't take place anymore within unrelated parties.
>> What, what, what is the solution for, for this problem?
>> Well, the, I think the only sustainable solution is,
and that's a huge step to be made politically and effectively.
Is that we try to harmonize as much as possible, all the different company tax
systems which are being applied by the countries of today's world.
And in this way, differences between tax systems and
the effects for tax payers will disappear.
In that setting, it will be possible to compute worldwide profits,
all based on a single system which is applied in all the countries.
You have, you can compute a single amount and you can reallocate, to the taxing
authority of all these individual countries, a particular fair share.
And it doesn't have to be based on today's rules.
If we say, we're going to allocate the global income of Apple,
all the ways of sales made in the different countries, fine.
If you say, we're going to allocate all the base of the payroll in different
countries, fine.
Whatever you think is agreeable among the countries involved.
>> Well, thank you very much Kees, for your views on transfer pricing.
And you mentioned that, well, the real solution, of course, with the,
to the problems we are experiencing at the moment in the area of transfer pricing
would be harmonization of the corporate tax base.
This will be exactly the topic of the next interview on the, on the EU law.
So we have prepared some special assignments for you in the area of
transfer pricing because we feel that this is an especially difficult area of law.
I would encourage you to go to the course page and
to complete the assignments for practice purposes.
See you next module.
