lnternational transfer pricing strategies for minimizing global income taxes

ADMINISTRAÇÃO CONTÁBIL E FINANCEIRA

lnternational transfer pricing strategies for minimizing global income taxes

Stephen T. Limberg^I; John R. Robinson^II; Raimundo L.M. Christians^III

^IVisiting Professor, EAESP/FGV Professor, The University of Texas at Austin. E-mail: [e-mail]

^IIAssociate Professor, The University of Texas at Austin

^IIIInternational Tax Partner, Price Waterhouse, São Paulo, S.P - Brazil

ABSTRACT

Optimal financiai strategies are criticai for long term survival in competitive international markets. Financial strategies pertaining to transfer pricing have become increasingly important as income tax authorities seek additional revenues through increased monitoring of company practices. In this first of two articles, optimal tax strategies are presented after reviewing the transfer pricing concept and the rationale underlying governments' increased focus on transfer pricing. In the second forthcoming article, we analyze the effect of government restrictions on optimal pricing strategies.

Key words: financiai strategies, international business, tax, transfer pricing.

RESUMO

A sobrevivência a longo prazo de estratégias financeiras ótimas, em mercados internacionais competitivos, é crítica. Estratégias financeiras concernentes a preços de transferência se tornam cada vez mais importantes à medida que os fiscais de impostos de rendas procuram receitas adicionais através de um controle crescente das práticas empresariais. Neste artigo, as estratégias ótimas de impostos são apresentadas depois de serem revisados o conceito de preços de transferência e as suas bases lógicas subjacentes ao crescente interesse dos governos. Num próximo artigo, nós analisaremos os efeitos das restrições governamentais nas estratégias de preços ótimos.

Palavras-chave: estratégias financeiras, transações internacionais, impostos, preços de transferência.

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Professor Limberg gratefully acknowledges the support of Philips do Brasil Ltda. and the Center for the Study of Westem Hemispheric Trade at The University of Texas at Austin.

1. US GENERAL ACCOUNTING OFFICE, Report to Congressional Requesters. International taxation: Transfer Pricing and Information on Nonpayment of Tax, Background. GAO/GGD-95-101, April 1995.

2. Law 9430 (December 27, 1996).

3. ORGANIZATION FOR ECONOMIC COOPERATION AND DEVELOPMENT. Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations. OECD publication service, July 1995.

4. US DEPARTMENT OF TREASURY. A Study ot Intercompany Pricing. US printing office, October 1988.

5. US DEPARTMENT OF TREASURY. A Study ot Intercompany Pricing. US printing office, October 1988. Glossary. And the OECD COMMITTEE ON FISCAL AFFAIRS. Model Tax Convention on Income and Capital. Article 9(1). OECD publication service, March 1994.

6. Law 9430 (December 27, 1996) defines related parties as those with a parent-subsidiary relationship (which requires direct or indirect voting rights of greater than 50 percent), companies with direct ownership of 10 percent or more, companies with 10 percent or more ownership held by a common owner, those with partnership relationshlps, an individual and a company which nas among its directors or controiling shareholders a relative, spouse or close friend of the individual, and those between which there is an exclusive aqent, distribution or concession contract.

7. Law 9430 (December 27, 1996) defines a tax haven as a country with a maximum income tax rate below 20 percent.

8. UNITED STATES GENERAL ACCOUNTING OFFICE., Report to Congressional Requeslers. International taxation: Transfer Pricing and Information on Nonpayment ot Tax. GAO/GGD-95-101, April 1995, p. 6.

9. Lost data during the implementation 01 a new tax authority management inlormation system Iikely caused lhe understatement 01 1994, as well as 1993, proposed adjustment amounts. UNITED STATES GENERAL ACCOUNTING OFFICE. Report to Congressional Requesters. International taxation: Transfer Pricing and Information on Nonpayment ot Tax. GAO/GGD-95-101, April 1995, Appendix 11, p. 20.

10. The 11 and 15 percent difference in FOS and UOS nontaxpayers occurred in 1991 and 1988, respectively. The number 01 cornpanies represented in Exhibil 3 range lrom: Ali FOSs 29,632 (1987) to 34,423 (1991); Ail UOSs 1,330,988 (1987) lo 1,261,559 (1991); Large FOSs 297 (1987) to 715 (1991); Large UOSs 2,483 (1987) to 3,713 (1991). US GENERAL ACCOUNTING OFFICE. Report to Congressional Requesters. International taxation: TransferPricing and Information on Nonpayment ot Tax. GAO/GGD-95-101, April 1995, Appendix V, Table V.2, p. 40.

11. US GENERAL ACCOUNTING OFFICE. Report to Congressional Requeslers. International taxation: Transfer Pricing and Information on Nonpayment ot Tax. GAO/GGD-95-101, April 1995, Appendix V, Table V.4, p. 42.

12. GRUBERT. H ., GOODSPEED, T. and SWENSON. O. Explaining the low taxable income of foreign-controlled companies in the United States. Studies in International Taxation. University of Chicago Press, p. 237-270. 1993.

13. COLLINS. J.H ., KEMSLEY, O. and SHACKELFORO, DA. Zero taxable income of foreign-controlled domestic corporations: Transfer pricing manipulation or low profitability? Working paper (University of North Carolina), May 2, 1994.

14. HARRIS, O., MORCK R., SLEMROO, J. and YEUNG, B. Income shifting in U.S. multinational corporations. Studies in International Taxation. University oI Chicago Press, p. 277-302, 1993.

15. Foreign earned income is not subjeet to Brazil's social contribution (or social welfare) fax which, for domestic eamings, is calculated based on taxable income.

16. $20 = $45 fax paid in Germany - $25 FTC in Brazil.

17. $20 = $20 tax paid in Costa Rica + $0 tax paid in Brazil.

18. $25 = $0 tax paid in Costa Rica + $25 tax paid in Brazil.

Publication Dates

• Publication in this collection
  21 Oct 2011
• Date of issue
  June 1997