This requirement is already in effect in most European countries. On January 1, 2007 the legislation was implemented in Sweden. The Swedish Tax Authority requires written documentation on international transactions when filing income tax return as of assessment year 2008.
– In Europe there is an enormous focus on internal pricing and in many countries, the companies will be fined if they don’t file a written documentation on the details of their international transactions, says Johan Rasin, tax consultant and partner, responsible for international taxation at Grant Thornton.
The new law implies that a Swedish company with foreign transactions, for example, in the same group, will have to establish an internal pricing document each financial year. The documentation should be available for the Tax Authority on demand. The reason behind this documentation is to facilitate for the Tax Authority to evaluate if prices and terms are in tune with the market and correspond to price levels between independent companies. Should the pricing deviate from the market, this implies an income transfer to the foreign company and the Swedish company’s fiscal result will be adjusted accordingly.
No matter what size, all companies with international transactions and partly owned foreign companies or subsidiaries, have to document the internal pricing. However, companies with small transactions only need to file a simplified documentation. The limit between small and large transactions is SEK 25 million on purchases and sales of goods and SEK 5 million on other transactions like services and financial services. In general, it is both expensive and time consuming to establish this internal pricing documentation. The tax unit at Grant Thornton has developed a tool to facilitate this documentation for companies with the simplified process.
– This tool will assist companies when establishing the documentation on their own to meet the Tax Authority minimum requirements. In addition to this tool, we also offer assistance to review the result, says Johan Rasin.
– With a written documentation, the risk for discretionary assessments is reduced, says Stefan Aldén, tax consultant at Grant Thornton, Malmö.
Emelie Ring, Editor
The documentation
* Written documentation should include:
- Company description, organisation and business
- Type and extent of transactions
- Operational analysis
- Description of pricing method
- Benchmarking analysis
* Documentation for each financial year, including internal documents and information.
* No need to enclose documentation to the company tax return unless required by the Tax Authority.