Subsidiarity test of the Commission's proposal for a directive on transfer pricing

Mathias Tegnér (S)

Mr. Speaker! The Committee on Taxation will now debate its report number 16. It concerns the subsidiarity test of the Commission's proposal for Directive 2023:529 on transfer pricing. At that point, a friend of the House might wonder: What actually is a subsidiarity test, and what is transfer pricing?

Briefly, it can be stated that a subsidiarity test is fundamentally about whether the EU or the nation-state should make a decision in a given matter, or put differently: whether the EU, according to any of the treaties, has the right to submit a proposal. Transfer pricing, Mr. Speaker, is about the question: Where should taxes be paid? Transfer pricing is about what prices companies within a group pay to one another. It may sound technical, but it is important precisely because it determines in which country taxes are paid.

These technical questions may seem less interesting, but they are extremely important for principled reasons. They concern the right to levy direct taxes. This is the member state's right, which is an immensely important principle for us Social Democrats, especially because a rather extensive work is currently underway, with a wave of various proposed directives, within the EU but also on a global level within the tax area. This work is fundamentally extremely important. But it is also important that both the EU and the OECD focus on the right things.

Subsidiarity test of the Commission's proposal for a directive on transfer pricing

Before Christmas, we voted here in the Swedish Riksdag to pass the law on the top-up tax. It is an important legislative product that concerns creating a global minimum level for corporate taxes. But this important work can hardly be done by a single nation-state. Now, one must work through this and ensure that the details are in place so that the law achieves the right effect. In our opinion, this is more important than the EU Commission coming up with new legislative products, as is the case now.

Before Christmas, the Riksdag also had a debate linked to another subsidiarity test. There, a unanimous Riksdag had objections regarding precisely subsidiarity. I am referring to the directive from the Commission that is sometimes called Hots. It concerns smaller companies being given the opportunity to choose between different tax systems in the EU. We Social Democrats believe that the starting point for cooperation within the EU is that the tax base shall be determined nationally.

How do we then think regarding this subsidiarity test, which, in other words, concerns transfer pricing? Well, according to the subsidiarity principle, in areas where the Union does not have exclusive competence, it shall act only if the objectives of the proposed action cannot be sufficiently achieved by the Member States. Furthermore, the action must have a legal basis in one of the EU treaties. Another part of the subsidiarity test concerns the proportionality principle, which stipulates that the Union's actions in terms of content and form shall not go beyond what is necessary to achieve the objectives of the treaty.

In this case, the debate concerns transfer pricing and, more specifically, a principle within the framework of transfer pricing called the arm's length principle. That principle states that prices and terms agreed upon between related companies, that is, companies within the same group, that trade with each other, shall be comparable to the prices and terms that would have applied if the companies had been independent of each other.

This rule, of course, has a rather extensive practice. It is not binding but has been developed by the OECD. Therefore, the regulatory framework is dynamic. We Social Democrats believe that it is important that the regulatory framework is precisely dynamic, because this is a moving matter.

We Social Democrats recognize that the issue of internal pricing is cross-border. Despite this, we believe there is a risk that the flexibility needed in this type of regulation will disappear if the EU legislates in this area. I say it again: For us Social Democrats, the fundamental principle that it is the member states who make decisions on direct taxes is important and must be protected. Therefore, when it comes to this directive, we also have a subsidiarity objection.

Why then this debate, perhaps someone thinks? You are in agreement on this issue, and obviously also when it comes to the other product that I just mentioned.

We Social Democrats believe that it is important that a sensible debate is held here in the chamber of the Riksdag about what the EU should do and not do. We also think it is important that the fact is raised that there has been a shift in how the government anchors tax issues in Sweden that come from the EU.

Throughout the entire 2000s, that is for two decades, governments from right to left have secured a broad cross-bloc majority in these tax issues. It has served Sweden well, Mr. Speaker. Unfortunately, the Tidö Agreement seems to be putting a spoke in the wheel of this. We Social Democrats regret that.

For obvious reasons, Moderates and Social Democrats have different views on Swedish tax policy. But we have historically had the same view on what are EU issues and what is national competence, specifically when it comes to tax. We do not believe it is good for Sweden if that consensus is broken. Therefore, we regret that the broad anchoring process no longer exists.

Those of you who follow the debates in the chamber and, above all, the tax committee's debates here in the chamber note that I raised this problem even before Christmas. But there is nothing to indicate that the issue is resolved. Therefore, I will continue to speak about this problem with a fool's persistence.

Mr. Speaker! I would like to conclude by stating that all work within the tax area becomes completely meaningless if we do not take the work against tax fraud seriously. Here, the government has much to prove. Here, the Prime Minister's bold expressions about "drive in the step" have shone by their absence.

We Social Democrats believe that the work against tax evasion and tax fraud is an extremely high priority. Already in 2016, the then S-led government made a decision on a ten-point program against tax evasion. The S-led government worked effectively and intensively with those issues.

Unfortunately, the new right-wing conservative SD-led government has not shown the same will to combat tax evasion. I am thinking of the discontinuation of the exit tax investigation, the handling of the new coupon tax, and also the reduced framework for the Swedish Tax Agency's work against specifically tax evasion.

It is important, real, and necessary to combat tax evasion and thereby create a powerful and fair tax policy that ensures that we, as a country, also continue to hold together. I therefore move, in conclusion, for approval of the committee's proposal in the tax committee's report 16 and thus also for the reasoned opinion.

(Applause)

The speech at riksdagen.se, in Swedish (opens in a new tab)

Eric Westroth (SD)

Mr. Speaker! Today we have the opportunity in the chamber to highlight one of the Committee on Taxation's subsidiarity reviews. What is the EU proposal that is on the table? It is referred to as a Proposal for a Directive on Transfer Pricing. What is transfer pricing, and why is a regulatory framework for this needed?

Mr. Speaker! When two companies located in different countries but within the same group, or interest community, do business with each other, a theoretical possibility opens up to accumulate the profit of the business transaction in either the country where the company selling the goods is located or where the company buying the goods is located.

To prevent the use of similar cross-border transactions as a tool for tax planning, double taxation, or double non-taxation, there is currently a regulatory framework designed by the OECD.

This is simplified as that in similar transactions between companies within the same group or interest community, one shall use a so-called internal pricing which shall be in accordance with an arm's length principle. This means that prices and other conditions linked to the transaction shall correspond to what would have been agreed upon between independent companies in a corresponding situation.

So: Just because one conducts cross-border business within the same group, one should not be able to choose in which country the profit arising from the transaction shall be taxed.

Now the Committee on Taxation has processed this matter as a so-called subsidiarity test. This means that we do not look at the proposal in substance but make the assessment of whether this is decided at the right level to achieve the goal. The main rule is that decisions should be made at the lowest level possible in order to still achieve the goals of the proposal.

Mr. Speaker! Trade is something that is positive and which is an important component for the prosperity of our country. Taxes from companies in Sweden that export products and services abroad are what we primarily build our welfare and our society on.

The Sweden Democrats are fundamentally a trade-friendly party. Every simplification we can make to facilitate trade between countries, whether it is with other EU countries or with third countries, we see as positive.

We also consider that tax evasion and tax avoidance should be combated and see proposals that are accurate and do not unreasonably burden companies or the respective countries' tax authorities as positive. However, the Commission's proposals are a bit much.

Mr. Speaker! As I mentioned earlier, the OECD already has a framework for precisely transfer pricing. Admittedly, the OECD's guidelines are not binding, and it is up to each country to interpret the guidelines. But it is at the same time a dynamic framework that develops over time and which is updated regularly.

That the EU should now develop a parallel system that is binding for the member states, admittedly based on the OECD's framework but without the flexibility allowed by the existing framework, risks creating new problems in transactions with third countries.

There is also an overriding risk, which often occurs when the EU is involved in developing systems, that it becomes over-engineered and extra complicated. Furthermore, the issue of transfer pricing and the arm's length principle is global and therefore requires global solutions.

But the most important objection is to safeguard the member states' powers in the tax area. The benefit of harmonized rules must be weighed against the possibility of introducing and maintaining national rules.

Mr. Speaker! That the EU constantly shows ambitions to move forward its positions and transfer more power from our national parliaments to Brussels is something that we in Sverigedemokrater see as worrying, and it should concern more.

This subsidiarity test does not, however, concern just this part regarding the transfer of power. But if the proposed EU-wide framework on transfer pricing were to become a reality, it will likely become more rigid, and the possibility of applying the OECD framework with its flexibility will become more limited.

The Government also makes the assessment that the commission exaggerates the problems with member states' interpretations of the OECD's framework, and disputes, at least between member states, are resolved through mutual agreements through tax treaties.

Subsidiarity check of the Commission's proposal for a directive on transfer pricing

The Government also considers that disputes generally do not arise because member states have interpreted the arm's length principle in different ways, as this is not an exact science but an overarching principle to ensure that the correct tax is paid in the correct country and that the circumstances often differ in individual cases. In summary, the committee considers, just like the Government, that the proposal contravenes the subsidiarity principle.

Admittedly, the issue of transfer pricing is cross-border in nature. But since there is already a framework from the OECD to adhere to and the issue is global, one should instead seek the solution by improving the OECD's framework rather than introducing one's own.

Mr. Speaker! We Sverigedemokrater stand behind the reasoned opinion of the Presidents of the European Parliament, the Council and the Commission and think it is positive that all other parties in the committee do the same.

The deliberation was hereby concluded.

(Decisions were made under § 7.)

The speech at riksdagen.se, in Swedish (opens in a new tab)