Dissertation: Transfer Pricing of Trademark in the International Tax Law – How to Determine Fiscally Acceptable Pricing Outcome?

Posted on 22/01/18.

Katriina Pankakoski "nailed" her doctoral thesis at the main building Tervahovi, University of Vaasa.

Lic.Sc Katriina Pankakoski's doctoral dissertation examines the problem of transfer pricing of trademarks in the international tax law both theoretically and from a pragmatic point of view. Her research also provides answers to practical problems arising in transfer pricing.

The discussion of the transfer pricing of multinational enterprises has been significant in both Finnish and foreign media. In these discussions, transfer pricing is often linked to tax planning or tax evasion. The transfer pricing of intangible assets could thus also be considered from this point of view. However, in the Pankakoski's doctoral study, the transfer pricing of trademark is considered from the pricing point of view.

Transfer pricing of multinationals means pricing between the group companies i.e. related parties, between which the pricing should follow and be implemented in accordance with the arm´s length principle. The arm´s length principle is expressed in the article “Associated Enterprises” in the tax treaties. The arm´s length principle contained in Finnish domestic tax law is expressed in Section 31 of the Act on Assessment Procedure (“AAP”, 18.12.1995/1558). However, these income adjustment norms are subject to interpretation, which is why determining the transfer price for intangible assets such as the trademark is challenging.

In the study, "Transfer Pricing of Trademark: Legal Restrictions regarding the Arm´s length Pricing of the Intra-Group Transactions", the legal restrictions of the application of the arm´s length principle have been determined for the purposes of Section 31 of the AAP. Section 31 of the AAP on transfer pricing adjustment corresponds to the wording of the Article 9 of the OECD Model Tax Convention (“MTC”). The study compares the content and scope of the arm´s length principle as set out in Section 31 of the AAP and Article 9 of the OECD MTC. The study also compares the similarities and differences between the norms defining the transfer pricing of both Finland’s and China's domestic tax legislation.

Based on the study, it can be argued that the difference in the rules of international tax law hampers the application and interpretation of the arm´s length principle. The scope of the Section 31 of the AAP differs from the scope of Article 9 of the OECD MTC. However, the scope of Article 9 of the OECD MTC and the scope of the Chinese domestic income adjustment rules are mutually compatible. The scope of these articles is broad, even very broad, which means that the transfer pricing adjustment may be based on the identified substance of the related party transaction. The scope of Section 31 of the AAP covers the possibility to adjust the pricing and agreed or imposed terms of the related party transaction. The scope of the arm´s length principle as set out in Section 31 of the AAP is narrow compared to the practice adopted in China's national tax law or in the application of Article 9 of the OECD MTC. However, it can be concluded that the legal restrictions regarding the scope of Section 31 of the AAP remain unclear, which is why the wording of the provision should be clarified as regards what the arm´s length principle means when applying the provision. This would increase predictability in taxation. In case of legal restrictions on the scope of Section 31 of the AAP defined in the study, the narrow interpretation of the arm´s length principle should be followed.

Pankakoski's doctoral thesis identifies key factors that can be used to determine fiscally acceptable valuation outcome in the transfer pricing of trademark. Based on the study, it can be stated that the level of pricing indicated in section 31 of the AAP can be determined by the means of different legal or established authoritative sources which determine the content of the arm´s length principle, such as OECD Transfer Pricing Guidelines and economic arguments. A fiscally acceptable valuation outcome is formed in such a way that, in determining the transfer price, the economic appraisal criteria for transfer prices are taken into account similarly to the open market. In the study, pricing between independent parties has been clarified from a fiscal point of view, taking into account the solutions offered by the economics. Thus, one possible pricing model for determining the transfer price of trademark has been determined. Based on the study, it can be stated that in terms of the defined pricing cases (chapter 2.5.4), it is possible to determine the arm´s length pricing through the interpretation of the broad arm´s length principle.

Further information

Katriina Pankakoski, tel. +358 50 538 9861, e-mail: katriinapankakoski@yahoo.co.uk

Pankakoski, Katriina (2018) Tavaramerkin siirtohinnoittelu: etuyhteysliiketoimen markkinaehtoisen hinnoittelun rajat. Acta Wasaensia 397, Doctoral dissertation, University of Vaasa.

Publication pdf: /materiaali/pdf/isbn_978-952-476-798-9.pdf

Publication orders: http://bit.ly/2F3s4vt (Juvenes verkkokirjakauppa)

Katriina Pankakoski has more than eight years of experience in transfer pricing. Katriina Pankakoski has worked in a Finnish multinational company, as Tax Auditor at the Large Taxpayers Office (KOVE) and currently as a tax consultant at KPMG (Global Transfer Pricing Services), especially on cases regarding the transfer pricing of intangible assets.

Public Defence

The public examination of Lic.Sc. Katriina Pankakoski´s doctoral dissertation “Tavaramerkin siirtohinnoittelu: etuyhteysliiketoimen markkinaehtoisen hinnoittelun rajat” will be held on Friday 26 January at 10 o´clock in auditorium Nissi (K218, Tritonia). The field of dissertation is business law.

Professor emeritus Heikki Niskakangas (Aalto University, School of Business) will act as opponent and professor Juha Lindgren as custos. The examination will be held in Finnish.

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