Transfer Pricing: Med særlig fokus på Advance Pricing Arrangements

Signe Primdal Andersen

Student thesis: Master thesis

Abstract

This thesis is written for the Master Course in Business Economics and Auditing, Cand.merc.aud., at Copenhagen Business School. The object of the thesis is transfer pricing, but with a particular focus on the problems of double taxation and possible resolutions hereof. The thesis focuses on the possibility of entering an Advance Pricing Arrangement (APA), which is an ahead of time agreement between tax authorities and a taxpayer on an appropriate transfer pricing methodology for some set of transactions at issue over a fixed period of time.1 The focal point of the thesis is the Danish APA program, how successful it is, and when an APA is appropriate to apply for. When two tax authorities won’t recognise each other’s perception of transactions in accordance with the arm’s length principle, the taxpayer will be displayed to transfer pricing double taxation. This can eventually be solved by a mutual agreement procedure or arbitration, if the tax authorities can come to an agreement, that is. However, this is often not possible – which, this thesis argues, makes the APA a resourceful solution for the taxpayer. An APA application process is however very expensive, especially in advisory costs, which is why the tool is often limited to the use of multinational enterprises with a high volume of transactions or a high profit on these. In addition, the process is very time consuming, wherefore the taxpayer needs to have competent in-house resources to manage it. Usually it takes 2-3 years from the formal application is turned in until a final agreement is signed. All applicants have to consider the benefits versus the downsides carefully before entering the program. By use of an interview with Ejnar Mikkelsen, Tax Manager in Novozymes, the thesis will look further into the considerations and practical experiences of a multinational enterprise using APA’s. In general it is concluded that tax directors find that the benefits of the APA outweigh the costs. In addition to the stability and security of knowing how their transfer pricing will be handled, respondents are better suited to manage internal resources and save time and costs by preventing future audits. The Danish APA program, this thesis finds, is both resourceful and at a high international standard. However, the thesis argues that there is still a need to improve the use and the accessibility of the APA’s. For these reasons there is an international focus on speeding up the procedure in the future.

EducationsMSc in Auditing, (Graduate Programme) Final Thesis
LanguageDanish
Publication date2013
Number of pages84