© 2011 grant thornton. all rights reserved invest in america – selectusa transfer pricing &...

© 2011 Grant Thornton. All rights reserved

Invest in America – SelectUSA Transfer Pricing & Expatriate Tax Issues

Sara Gustafsson / Aino Askegård Andrésen

28 September 2011

2© 2011 Grant Thornton. All rights reserved

Transfer Pricing

Transfer Pricing

Sweden United States

IRS §482

FIN 48OECD Guidelines Domestic Tax legislation

Sweden - USDouble Tax Treaty


• Economic Analysis of cross-border transactions between related parties

• Ensures transactions are conducted at arm's length

• Documentation requirements!

What is Transfer Pricing?

Swedish Parent

Company

US Subsidiary

Services GoodsIP Financing


• Standard/Principle: a taxpayer deals at arm's length with an uncontrolled taxpayer

• Test: Are the results of the transaction consistent with the results that would have been realized if uncontrolled taxpayers had engaged in the same transactionunder the same circumstances?

• Analyze comparable transactionsunder comparable circumstances

What Exactly is "Arm's Length"?


• Predictability to support international trade and investment

• Different tax rules in different tax jurisdictions can lead to government disputes over the same transaction

• Many countries view the proper enforcement of transfer pricing rules as a significant revenue raiser

• Many countries impose significant penalties for noncompliance with the transfer pricing regulations

Importance of Worldwide Transfer Pricing


• A transfer pricing method may produce a single reliable result or a range of reliable results

• In the U.S., the interquartile range is used to eliminate outlying results

• In Sweden the tax payer may use the full range, however, it is in many cases recommended to target the interquartile range.

Identifying Arm's Length

q1 q2 q3 q4

Inter Quartile Range

Full Range


• US: Choose the best method

• Sweden: Choose the most appropriate method

• Method selection will depend upon:

– Type of transaction– Information available– Other countries involved

Choosing the Best Method


Methods to Test Arm's Length

Sweden USComparable Uncontrolled Price Method ("CUP") X XResale Price Method ("RPM") X XCost Plus Method ("CP") X XComparable Profits Method ("CPM") - XProfit Split Method ("PSM") X XTransactional Net Margin Method ("TNMM") X -Services Cost Method ("SCM") - XGross Services Margin Method ("GSMM") - XUnspecified Methods X X


• Structure of your investment– Who should own IP created?– Financing options?

• Allocation of functions and risks– Distributor? Commission? – Full fledged or limited risk?

Tax Planning Opportunity!


Invest in America - SelectUSA

Expatriate Tax Issues

Aino Askegård Andrésen

28 September 2011


Moving employees from Sweden to the US

• Tax• Social Security• Practical issues


Tax – Employees become tax residents both in Sweden and in the US

Tax Residency• Domicile

• Connection

Tax Residency• Presence

• Work

Sweden US


Swedish Tax issues

US employment income exempted from taxation in Sweden in accordance with six-month rule if

• The employment and stay in the US lasts for at least six months• The employment income is taxed in the US• A maximum of 72 days per year are spent in Sweden

– All other types of income taxed in Sweden in accordance with normal rules

– Claim of six-month rule exemption in Swedish tax return


Taxation in the US

Assignees to the US

• US citizen / permanent resident / resident alien / non resident

• Residency test: - Green Card holder- Substantial presence test (> 183 days during a 3 year period)


Taxation in the US

Assignees to the US - "resident aliens" - taxed in accordance with same tax rules as apply to US citizens• Tax levied at graduated rates on all income from world-wide sources• Employment income, e.g. base salary, bonus "cola", housing allowance, etc.• Investment income (interest, dividends, etc)• Federal, State and Local taxes• Filing requirements, due dates and extensions• Tax planning possibilities

Seek advice from tax professional!


Application of the Sweden/US Tax Treaty

• Is applied when the same income is taxed in accordance with domestic legislation in both countries

• The effect of applying the treaty can alleviate taxation, but will not increase tax burden

• When the six-month rule is applicable, normally no risk of double taxation arises

• Can be applied also on other income than employment income, e.g. interest income and dividends


Application of the Sweden/US Tax Treaty

Business trips

• Application of "economic employer" concept in US tax law

• Risk of taxation in the US when costs are allocated to the US entity


Social Security

Swedish rateER 31.42% EE 7.00% (capped, SEK 29 400 for 2011)

US rateER/EE OASDI 6.2%*) (capped USD 4 486)

Medicare 1.45%

*) EE rate is reduced to 4.2% for income year 2011


Social Security

Sweden/US Totalization agreement

• When assignment > 12 months and < 60 months– Possible remain covered by Swedish social security

system as regards pension and part of health insurance

• Alternatively– Possible compensate employee for losing Swedish

pension coverage by private pension insurance

=


Practical issues to consider for employer

In Sweden

• Assignment letter• Preliminary taxes• Reporting• Pension• Social Security• Cost allocation

In the US

• Preliminary taxes and reporting

• Social Security• Tax Planning in Advance


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Contact details

Aino Askegård Andrésen Sara Gustafsson

[email protected]+46 8 563 072 85+46 7 613 072 85

[email protected]+46 8 563 073 22+46 7 035 073 22

mailto:[email protected]

mailto:[email protected]


Thank you for your attention!

© 2011 grant thornton. all rights reserved invest in america – selectusa transfer pricing &...

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