Transfer Pricing: An analysis of the development

Stine Hansen

Student thesis: Master thesis


Transfer pricing is a profit allocation method and results in the setting of prices among divisions within an enterprise. Transfer prices are charges for goods and services between controlled (or related) legal entities within an enterprise. In principle, a transfer price should match either what the seller would charge an independent, arm's length customer, or what the buyer would pay an independent, arm's length supplier. Documentation regarding the intercompany prices must be kept by the company. In recent years, there has been an increased focus on transfer pricing. Since 1998, the tax authorities have been conducting studies and monitoring efforts, which have resulted in corrections of intercompany values and prices. In recent years, it has been the tax authority’s assessment that a large part of the increase in transfer pricing cases is due to the fact that multinational companies have not done enough to respect the arm's length principle in their intercompany cross-border trade. It is imperative for the Danish government to ensure that large and multinational companies are paying the tax they are required to by law. The tax authorities are making great effort to ensure that this happens. Denmark is among the countries in terms of size, using the most resources on the TP controls. In 2012, there was conducted 67 TP corrections, which resulted in an increase in the taxable income of a total value of 21.2 billion DKR. It is not possible for the Danish tax authorities to disclose the exact number of annual increases, leading to an increased payment of corporation tax. Director Rasmus Bo Andersen of the Danish tax authorities, however, has told the newspaper, Berlingske Business, that it is estimated a success if half of the transfer pricing cases are lost. The increased focus on the transfer pricing area has resulted in an increasing number of cases. It is unknown what proportion of these cases can be maintained in the justice system. Transfer pricing is not an exact science, and therefore it is not black/white what the right result is. Despite the fact that the tax authorities cannot determine what extra income comes in the Treasury as a result of the efforts of the TP range, it is the former tax minister's assessment that the tax authorities has a good hold on the job and says that there is nothing that suggest that the tax authorities cannot maintain the increases. One of the issues is whether the tax authorities go too far in their attempt to hit the multinationals, when the tax authorities even say that a success rate of 50 % is acceptable. Another issue is that it is difficult for companies to assess how much is really needed to have an adequate transfer pricing documentation. Based on the above issues, I will look at developments in the transfer pricing area, with particular focus on recent years in this thesis. I will look at the development in focus areas at the tax authorities, and the development in the number of transfer pricing cases.

EducationsMSc in Auditing, (Graduate Programme) Final Thesis
Publication date2014
Number of pages105