Questions raised over Audit Committee’s figures on tax revenue losses from transfer pricing
Figure quoted earlier was for five years, and not one
Losses in corporate tax revenues resulting from transfer pricing by companies are apparently significantly lower than the numbers reported earlier by Helsingin Sanomat.
In a story published on Wednesday it was claimed that transfer pricing deprives the state of EUR 1.6 billion in corporate tax money a year. This has been revised down to about EUR 320 million a year.
The sum quoted by Helsingin Sanomat was taken from a paper put out by the Audit Committee of the Finnish Parliament, reporting on the state audit report of 2011, and it was actually an estimate for five years.
The statement concerning economic issues for 2011 did not specify the five-year time period. The report stated that tax authorities "estimate the losses in tax revenue due to transfer pricing at 1.6 billion euros".
The other figures in the report mainly concern annual figures pertaining to state finances.
The fact that the number was for a five-year period came as a surprise to MP Tuija Brax (Green), the chairwoman of the Audit Committee.
"This did not come up during hearings with experts or in statements. The obscurity underscores the fact that the government must carry out a proper study of the problems linked with transfer pricing and the extent of the phenomenon, as called for by the Audit Committee."
Brax says that the committee based its report on information from tax authorities.
The sum is based on a risk analysis that we have made in the tax administration. It is about the combined estimated tax deficit. The time limit in the analysis is five years, because it is the time limit for back tax inspections", says Sami Laaksonen, a leading expert at the tax administration.
Under the new figures the annual shortfall caused by transfer pricing is an average EUR 320 million, and annual fluctuations can be considerable.
Transfer pricing refers to pricing used between different companies of a larger concern in transactions between each other. It is not illegal, as long as the pricing used in such transactions stays within the range of normal market prices.
Some international companies use transfer prices as a way of avoiding taxes. One way to do this is to charge a higher price than normal for services within a concern, or in loan interest, which makes it possible to channel profits to countries with a lower level of taxation.
Previously in HS International Edition:
Transfer pricing by companies cuts state tax revenue (8.8.2012)