Invest in America Select USA Transfer Pricing Expatriate

Invest in America – Select. USA Transfer Pricing & Expatriate Tax Issues Sara Gustafsson / Aino Askegård Andrésen 28 September 2011 © 2011 Grant Thornton. All rights reserved

Transfer Pricing Sweden United States Sweden - US Double Tax Treaty OECD Guidelines © 2011 Grant Thornton. All rights reserved Domestic Tax legislation IRS § 482 FIN 48 2

What is Transfer Pricing? • Economic Analysis of cross-border transactions between related parties • Ensures transactions are conducted at arm's length Swedish Parent Company Services Goods IP Financing • Documentation requirements! US Subsidiary © 2011 Grant Thornton. All rights reserved 3

What Exactly is "Arm's Length"? • Standard/Principle: a taxpayer deals at arm's length with an uncontrolled taxpayer • Test: Are the results of the transaction consistent with the results that would have been realized if uncontrolled taxpayers had engaged in the same transaction under the same circumstances? • Analyze comparable transactions under comparable circumstances © 2011 Grant Thornton. All rights reserved 4

Importance of Worldwide Transfer Pricing • Predictability to support international trade and investment • Different tax rules in different tax jurisdictions can lead to government disputes over the same transaction • Many countries view the proper enforcement of transfer pricing rules as a significant revenue raiser • Many countries impose significant penalties for noncompliance with the transfer pricing regulations © 2011 Grant Thornton. All rights reserved 5

Identifying Arm's Length • A transfer pricing method may produce a single reliable result or a range of reliable results • In the U. S. , the interquartile range is used to eliminate outlying results • In Sweden the tax payer may use the full range, however, it is in many cases recommended to target the interquartile range. Full Range q 1 q 2 q 3 q 4 Inter Quartile Range © 2011 Grant Thornton. All rights reserved 6

Choosing the Best Method • US: Choose the best method • Sweden: Choose the most appropriate method • Method selection will depend upon: – Type of transaction – Information available – Other countries involved © 2011 Grant Thornton. All rights reserved 7

Methods to Test Arm's Length Comparable Uncontrolled Price Method ("CUP") Resale Price Method ("RPM") Cost Plus Method ("CP") Comparable Profits Method ("CPM") Profit Split Method ("PSM") Transactional Net Margin Method ("TNMM") Services Cost Method ("SCM") Gross Services Margin Method ("GSMM") Unspecified Methods © 2011 Grant Thornton. All rights reserved Sweden US X X X X 8

Tax Planning Opportunity! • Structure of your investment – – Who should own IP created? Financing options? • Allocation of functions and risks – – Distributor? Commission? Full fledged or limited risk? © 2011 Grant Thornton. All rights reserved 9

Invest in America - Select. USA Expatriate Tax Issues Aino Askegård Andrésen 28 September 2011 © 2011 Grant Thornton. All rights reserved

Moving employees from Sweden to the US • Tax • Social Security • Practical issues © 2011 Grant Thornton. All rights reserved

Tax – Employees become tax residents both in Sweden and in the US Sweden Tax Residency • Domicile • Connection © 2011 Grant Thornton. All rights reserved US Tax Residency • Presence • Work

Swedish Tax issues US employment income exempted from taxation in Sweden in accordance with six-month rule if • The employment and stay in the US lasts for at least six months • The employment income is taxed in the US • A maximum of 72 days per year are spent in Sweden – All other types of income taxed in Sweden in accordance with normal rules – Claim of six-month rule exemption in Swedish tax return © 2011 Grant Thornton. All rights reserved

Taxation in the US Assignees to the US • US citizen / permanent resident / resident alien / non resident • Residency test: - Green Card holder - Substantial presence test (> 183 days during a 3 year period) © 2011 Grant Thornton. All rights reserved

Taxation in the US Assignees to the US - "resident aliens" - taxed in accordance with same tax rules as apply to US citizens • Tax levied at graduated rates on all income from worldwide sources • Employment income, e. g. base salary, bonus "cola", housing allowance, etc. • Investment income (interest, dividends, etc) • Federal, State and Local taxes • Filing requirements, due dates and extensions • Tax planning possibilities Seek advice from tax professional! © 2011 Grant Thornton. All rights reserved

Application of the Sweden/US Tax Treaty • Is applied when the same income is taxed in accordance with domestic legislation in both countries • The effect of applying the treaty can alleviate taxation, but will not increase tax burden • When the six-month rule is applicable, normally no risk of double taxation arises • Can be applied also on other income than employment income, e. g. interest income and dividends © 2011 Grant Thornton. All rights reserved

Application of the Sweden/US Tax Treaty Business trips • Application of "economic employer" concept in US tax law • Risk of taxation in the US when costs are allocated to the US entity © 2011 Grant Thornton. All rights reserved

Social Security Swedish rate ER EE 31. 42% 7. 00% (capped, SEK 29 400 for 2011) US rate ER/EE OASDI 6. 2%*) (capped USD 4 486) Medicare 1. 45% *) EE rate is reduced to 4. 2% for income year 2011 © 2011 Grant Thornton. All rights reserved

Social Security Sweden/US Totalization agreement • When assignment > 12 months and <= 60 months – Possible remain covered by Swedish social security system as regards pension and part of health insurance • Alternatively – Possible compensate employee for losing Swedish pension coverage by private pension insurance © 2011 Grant Thornton. All rights reserved

Practical issues to consider for employer In Sweden In the US • • Preliminary taxes and reporting • Social Security • Tax Planning in Advance Assignment letter Preliminary taxes Reporting Pension Social Security Cost allocation © 2011 Grant Thornton. All rights reserved

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Member of Grant Thornton International • International Audit, Tax and Advisory organisation • 113 countries • 521 offices worldwide • 30 000 employees © 2011 Grant Thornton. All rights reserved

Grant Thornton Sweden Top 5 position • • Challenger to "the Big 4" More than 900 employees Approx 130 partners 25 offices © 2011 Grant Thornton. All rights reserved

Complete competence • Audit and advisory services • Accounting services • Tax services • Corporate Finance • Business Consulting © 2011 Grant Thornton. All rights reserved

Contact details Aino Askegård Andrésen Sara Gustafsson aino. a. andresen@se. gt. com +46 8 563 072 85 +46 7 613 072 85 sara. gustafsson@se. gt. com +46 8 563 073 22 +46 7 035 073 22 © 2011 Grant Thornton. All rights reserved

Thank you for your attention! © 2011 Grant Thornton. All rights reserved