Browsing by Author "Falkenberg, Anton"
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Falkenberg, Anton (2015)The subject of the master's thesis is location savings, which can be defined as the net cost savings realized by a multinational enterprise through operating in a low-cost jurisdiction instead of a high-cost jurisdiction. Location savings has emerged as one of the most interesting international tax law developments in the recent years as the tax administrations in countries such as China and India have begun to apply the concept in practice. The OECD Transfer Pricing Guidelines of 2010 define location savings as a concept relating to business restructurings. However, in many jurisdictions the concept is understood more broadly. According to the broader definition location savings accrue to multinational enterprises as a result of the exploitation of location-specific advantages offered by low-cost jurisdictions without necessitating a relocation of economic activities from high-cost jurisdictions. The study discusses this disputed aspect of location savings and seeks to highlight the discrepancies and difficulties brought about by the lack of international understanding of the concept. The research methods utilized are comparative law and legal dogmatics. Comparative law is a suitable research method in this context, as the national legal approaches to location savings can be compared against the background of both the OECD's and United Nations' transfer pricing guidance. The jurisdictions discussed in the study are China, Finland, Germany, India and the United States. Both OECD member and non-member countries, or the “high-cost” and “low-cost” jursdictions are therefore represented in the study. The diverging national interests concerning location savings are evident: the "high-cost" jurisdictions or developed countries seek to preserve their tax base and on the other hand the "low-cost" jurisdictions or developing countries would like to see the additional profits accruing from location savings taxed where they originate. The findings of the study suggest that there is no clear international consensus on the scope of the concept. The OECD is currently broadening its definition of location savings to include situations outside the business restructuring context. The means of governing the issue legally are also diverse: Finland, India and the United States have some case law but little if any legislation on location savings, while Germany has integrated the location savings -specific norms into an extensive legislative package on business restructurings. Concerning China there is no informative case law on the subject to provide guidelines but the tax administration has described its approach to location savings in the United Nations Practical Transfer Pricing Manual for Developing Countries. The study concludes that the situation concerning location savings’ standing in transfer pricing practice is still generally unclear. Nevertheless, evident is that the concept’s importance is increasing as the tax administrations in developing countries are devoting more resources to transfer pricing and seeking to take on a more prominent role in international taxation matters. The Chinese and Indian tax administrations are already utilizing the concept of location savings to make transfer pricing adjustments during audits. It is not only transfer pricing and location savings in developing countries that might cause taxpayers trouble: a Finnish Supreme Administrative Court case demonstrates that the application of location savings in transfer pricing in a coherent manner may be a difficult task even in developing countries. The German legislation on the subject, which might result in a non-arm’s length outcome and location savings being subject to an exit tax adjacent to business restructurings, has also not went without criticism.
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