Today we round up three of 2022’s big Transfer Pricing (TP) cases, and shucks guys, TP wins and losses are getting bigger!

Swedish court announces Swedish Krona of 1,8 billion victory for Tele2

In November, Tele2, a large Swedish multi-national, announced a SEK 1,8 billion (or USD 175 million in real money) win related to tax deductions for foreign exchange losses on intra-group loans, that had previously been disallowed by the Swedish tax authorities in an assessment issued back in 2019.

The losses arose on currency conversion of certain intra-group loans and the Revenue argued it wouldn’t have been arm’s length to agree to such conversions.

Tele2 filed an appeal with the Court of Appeal, which decided in favour of Tele2 and granted the full tax deduction. According to the court, a reasonable and probable explanation for the currency loss had been provided by the company. So, explaining and evidencing the commercial rationale of what you’re doing and why you’re doing it is key in all TP matters. In other good news, the taxman is not always right!

Caterpillar’s 15-Year Tax Saga Ends With $740 Million IRS Settlement

Caterpillar Inc., one of the world’s largest machinery producers, has struck a deal with US tax authorities to end a dispute that stretches all the way back to 2007.

In a 2009 whistle-blower lawsuit, a former Caterpillar executive accused the company of using offshore subsidiaries in Switzerland and Bermuda to avoid US taxes from 2000 to 2009. It was claimed that the company sold and shipped spare parts globally from Illinois while improperly attributing at least $5,6 billion of profit from those sales to a unit in Geneva.

The US machinery maker said its underpaid taxes for those naughty years was $490 million, plus $250 million in interest, according to its earnings statement released in October 2022. While the $740 million sum is far less than the $2,3 billion the company had been disputing for years, this clearly shows that TP structures with low tax jurisdictions lacking appropriate substance, people, functions, or risks, simply won’t stand the test of TP time.

While the settlement resolves all issues through 2016, Caterpillar has suggested it expects major examination for subsequent tax and transfer pricing matters by tax authorities. Watch this space.

Shell forks out USD 5,7 billion

99 countries and USD 12,6 billion in corporate income tax and government royalties later, the major oil company Shell settled its tax bill after a large-scale TP audit.

The company paid USD 5,7 billion of corporate income tax and accrued USD 279 million of withholding tax, resulting in a total of USD 6 billion in income taxes and withholding taxes as reported in their country-by-country report.

High energy prices are affecting households and businesses globally, and the taxes and transfer pricing policies paid and put in place by energy companies are, now more than ever, under scrutiny. The oil giant assured to regularly review their entities in low-tax jurisdictions and to ensure their presence aligns with the Responsible Tax Principles and Policies and that they are there for commercial reasons.

Our takeaway 

Be afraid, be very afraid.  Or better, be ready, be very ready.  As TP ain’t going anywhere, and these cases show the scale of the TP pie that revenues authorities are hungry for.

As Thomas Sowell not-so-famously said, “Prices are important, not because money is considered paramount, but because prices are a fast and effective conveyor of information through a vast society in which fragmented knowledge must be coordinated”. From a tax risk perspective, pricing has never been so important.

So set your transfer prices correctly and get in touch with our specialists at Regan van Rooy to help you de-risk.

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How you structure your business is a critical question as you expand globally.  The right structure will protect your assets, improve your currency position, support your business operations, facilitate future business expansion and changes, and optimise your overall tax rate. Trying to unscramble a sub-optimal structure entered into in haste or without full consideration of relevant facts is complex and expensive, so it’s important to plan upfront.

Structuring an international business is both a science and an art – this is our specialist area of expertise. Regan van Rooy is an international tax and structuring advisory firm focussing on Africa. We have offices in South Africa, Mauritius and Ireland and we can help you with any international tax or structuring query.