6
SPEZIAL
|
CONTROLLING INTERNATIONAL
|
ISSUE 12
|
SEPTEMBER 2015
CONTROLLER
CA INTERNATIONAL
TRANSFER PRICES
AN IMPORTANT
INTERNATIONAL ISSUE
Dietmar Pascher,
Partner and Trainer of the
CA controller akademie,
Manager International
Program
Alternatively, in my most recent Stage II seminar I learned
about a case where a controller knew about activities
abroad, but not (yet) anything regarding the corresponding
tax consequences. Unfortunately, the tax department was
informed much too late about the activities, and this delay
resulted in high penalty payments.
In order to achieve fairness in taxation between countries,
the OECD (Organisation for Economic Co-operation and
Development) states that transfer prices must meet certain
requirements, including a comparison with third parties. This
approach, also called the arm’s length principle, is described
by the OECD in its Transfer Pricing Guidelines as follows:
“
The arm’s length principle requires that com-
pensation for any intercompany transaction shall
conform to the level that would have applied had
the transaction taken place between unrelated
(third) parties under similar conditions.
”
If so-called “related companies” conduct business with each
other across national borders, they must observe these
fiscal rules. Permanent establishments (place of business)
are a particularly important problem in this regard. While
controllers are informed about operational projects and
the activities of employees in foreign countries, they are
often unfamiliar with the tax rules governing these new
places of business and “permanent” establishments. On the
other hand, the tax department is easily able to determine
TAX LAW VERSUS PERFORMANCE MEASUREMENT?
One of the focal points in our 5-level diploma programme is
performance measurement. In discussions with our clients we have
found that tax-based transfer prices in international corporations dilute
transparency about the company’s actual performance. Indeed, in
some cases management metrics still in use today are even made
completely obsolete. This is a new challenge for us controllers.
whether a permanent establishment exists under domestic
(or foreign) law, but it is too far removed from the operational
business to become aware of the events that might lead
to a permanent establishment. According tax authorities a
permanent establishment is quite often founded based on
the number of days that an employee spends abroad. The
limit in many countries is 183 days. If an employee is au-
thorised by the company to conclude business agreements
– often called signature authority – this, too, usually leads
to the foundation of a permanent establish-
ment. In such cases it is generally irrelevant
whether this authorisation is based on legal
or commercial rules. Tax law focuses on
an activity’s economic substance, which
has individual phases (negotiations about
the type and scope of the performance,
pricing, payment and delivery conditions,
contract signature, etc.) within the overall
process until an agreement is concluded.
Legal tricks to circumvent this signature
authority are thus fundamentally invalid
from a tax perspective.
Furthermore, we convey to our seminar
participants that, in contrast to what the
title “Transfer Prices” suggests, it is
not just the prices that are relevant,
rather all commercial conditions as-
sociated with a transaction, such
