ANALYSIS
Transfer Pricing in Focus
Interview with Arkadiusz Mierzejewski, Partner, Tax at KPMG in the Balkans
EM: What is the arm’s length
principle and could you share
transfer pricing developments
in the region?
Mierzejewski: The arm’s length
principle has become the international standard used to determine the appropriate price
for transactions between related parties. This principle requires that related party transactions be carried out at prices
as if those transactions are carried out under exactly the same
conditions between unrelated
parties on the open market.
EM: What is transfer pricing and is it really the major
tool for corporate tax avoidance worldwide?
Mierzejewski: Transfer pricing refers to the amounts
charged in transactions between affiliated legal entities. These transactions may involve the transfer of
tangible goods, intangible property such as technology or brand names, services or financing. A common assumption is that transfer pricing mainly applies to cross border transactions; however it is a factor in domestic transactions as well.
Considering that the prices are set between affiliated
legal entities, prices may not align with those agreed
to between unrelated parties on the open market.
Hence, transfer pricing directly impacts the taxable
profits of each entity involved; in this respect, transfer pricing may be used as a tool to shift income to
low tax jurisdictions, thus avoiding payment of tax in
high tax jurisdictions.
This is a major concern for all tax authorities and, in
my opinion, a valid one.
22
All OECD countries apply this
principle, as does an increasing number of non-OECD countries. More and more
non-OECD countries are adopting transfer pricing
legislation in line with the OECD principles, methods
and guidelines in an attempt to gain from the experience of more developed countries.
This is happening in our region as well. If you look
at Balkan countries such as Bulgaria, Croatia, Serbia
and Romania, you’ll see that they have already adopted transfer pricing legislation in line with OECD
principles. The next one is likely to be Albania, which
is in the process of approving amendments to its
transfer pricing legislation to harmonize it with
OECD principles.
EM: Can you give us a sense of the current
Macedonian legislation and enforcement in this
area?
Mierzejewski: The Macedonian transfer pricing provisions include the worldwide concept of related
party transactions needing to be conducted at arm’s
Emerging Macedonia Spring 2014 Issue 41