The Swedish Tax Agency’s difficulty in meeting its burden of proof
The Swedish Tax Agency (STA) bears the burden of proof that pricing between associated companies differs from what would have been agreed between independent companies but this burden has proved difficult for it to meet.
New approaches used by the STA in its investigations suggest it puts more effort in substantiating incorrect pricing.
The STA puts effort in investigating the final set derived from benchmark studies. Our experience show s that the STA, in several cases, has cherry¬picked companies from the final set and, thus, has put emphasis on the importance of quality rather than the quantity of the comparables.
In a recent judgment by the Administrative Court of Appeal relating to the Tetra Pak case, the court held that there w as no reason to question the reliability of Tetra Pak’s documentation even though it was inadequate.
It emerged in Tetra Pak’s transfer pricing documentation and on its w ebsite that a key value driver of Tetra Pak’s business w as the patented technical superiority of Tetrapak Brick Aseptic (TBA), which is a carton package for liquid foods.
The machine and the packaging material goes hand¬in¬hand, which makes it difficult for clients to change distributor and machine.
The transfer pricing documentation indicated that this technology increases the profitability both in Sweden and globally. However, the transfer pricing documentation did not provide any information about where the research and development related to TBA w as conducted.
In the Administrative Court of Appeal the company put forward that the research and development of TBA has been conducted in Italy since 1993. The Administrative Court of Appeal held that it is surprising that this information w as not provided earlier in the process, but that there were no
reasons to question the reliability of the new information.
The STA relied on the information found in the transfer pricing documentation and on the company’s website. It further assumed that both of these sources are updated and consistent.
It is noteworthy that the Administrative Court of Appeals does not question the accuracy of the transfer pricing documentation even if it is inadequate. The STA clearly strives to find something to hold tight to when investigating whether transfer prices between associated companies are at arm’s¬length.
The aforementioned is an indication of new approaches used by the STA while it also shows the difficulty the STA faces in proving miss-pricing.