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Little control and follow-up of internal company transactions across national borders

​The Norwegian Tax Administration carries out few controls of internal company transactions across borders, but even a small number of controls have led taxable revenue to increase by an average of approximately NOK 10 billion per year. “We are talking about significant amounts.  More effective controls can lead to more accurate taxation and increased tax revenues”, says Auditor General Per-Kristian Foss.

Published 6/5/2018 1:00 PM

Document 3:12 (2017–2018) The Office of the Auditor General’s investigation of the Norwegian Tax Administrations’ control of the pricing of transactions in commonality of interest across national borders was submitted to the Storting on 5 June.

Over 60 per cent of global trade across national borders takes place between companies with commonality of interest. In internal transactions, these prices are set across national borders, and this affects the tax base in the individual country significantly.

“The taxation of multinational companies is an increasingly relevant topic in several countries. Tax-motivated pricing and moving of surplus can significantly reduce taxation”, states Auditor General Foss.

The Office of the Auditor General’s investigation shows that in the period 2009–2016, the amount of controls started in a given year varied between 30 and 110 cases. Despite increased resources, the amount was at the same level in 2016 as it was in 2009, close to the average for this period.

“When the controls that were carried out in this period resulted in the taxable revenue being corrected by approximately NOK 79 billion, it shows that there is reason to prioritise this area. Control is important for achieving compliance with the regulations”, Foss points out.

On average, control cases have a processing time of two years from the start to a decision; in addition there are often appeals and litigation. In 13 of 32 cases investigated, the processing time was over 1,000 days. The investigation shows that, in some cases, the Tax Administration is reticent to follow up to ensure companies are complying with their duty of disclosure and the associated deadlines.

“The Tax Administration should be able to set stricter requirements and clearer deadlines”, says Foss.

The Tax Administration can impose sanctions such as additional taxes and coercive fines, but rarely uses them in internal pricing cases. According to the Directorate of Taxes, it is often difficult to ascertain that the conditions for additional taxes are met in these cases, and it has recommended restraint in their use. From 2017, coercive fines of up to approximately NOK 50,000 can be imposed when mandatory information is not provided within the set deadline. The Directorate of Taxes considers this amount to be low and of little relevance for this type of case.

“The Ministry of Finance has, in several budget propositions, emphasised that control of internal pricing is important and can result in significant increases in tax revenue, but has not secured further information about this from either the Directorate of Taxes or through their own evaluations or analyses. The Office of the Auditor General views this as criticisable”, says Foss.

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