TOTAL TAX LEVEL FOR THE NEW NORDIC GROUP
New Nordic Healthbrands AB is a Swedish company, listed on the Swedish Stock Exchange, First North Growth Market (Nasdaq Stockholm). New Nordic is planning to apply to International Financial Reporting Standards (IFRS) as adopted by the EU once the company will hopefully be approved to be listed on Swedish Stock Exchange, Main Market (Nasdaq Stockholm).
The New Nordic group’s total tax rate is a result of the reported profits of New Nordic’s various subsidiaries and the effective corporate tax rates in each country, which vary from country to country. New Nordic aims to pay the right amount of tax in the right country.
New Nordic’s total tax rate is around the Swedish corporate tax rate which currently is 22 percent. For detailed information about New Nordic’s tax rate please see the Annual Report.
NEW NORDIC’S TRANSFER PRICING MODEL IN LINE WITH THE INTERNATIONAL TRANSFER PRICING GUIDELINES
The general underlying aim is that profits should be taxed where the value is created in accordance with the OECD and UN guidelines on transfer pricing. New Nordic analyse, evaluate and if necessary revise the transfer pricing variables such as benchmarks yearly in cooperation with external transfer pricing tax experts.
New Nordic works with a simple but highly integrated business model whereby research, innovation, product development, assortment planning, and pricing and international marketing functions are taken care of in the mother company New Nordic Healthbrands AB, Sweden. For example, since New Nordic’s own research and innovation, product formulation and packaging design and assortment function creates the product range centrally in Sweden, the value for these functions is allocated to Sweden.
The procurement and sourcing function is located in Denmark and operates as the group’s central procurement and buying agent function. Since Denmark had been handling the group’s procurements for many years, it is natural to continue to use and to further strengthen Denmark as the central hub for all New Nordic’s procurements to representative offices worldwide.
Together with external advisors, New Nordic has analysed where the main value is created within the group. In New Nordic’s case the value created is split between a) the central functions in Sweden, b) the procurement and buying agent function in Denmark and c) the sales countries. The analysis shows that most of the value of the group is created in Sweden and should thus be taxed there. The above constitutes the foundation of New Nordic’s transfer pricing model for all inter-company transactions.
New Nordic’s transfer pricing model is in line with the International Transfer Pricing Guidelines. New Nordic also follows the local regulations of the country in which the relevant subsidiary is located when determining the prices of its inter-company transactions. New Nordic conducts its inter-company transactions at arm’s length and has implemented transfer pricing documentation to support the transfer pricing methods applied.
New Nordic applies the arm’s length principle to ensure that parties to the intra-group transactions are appropriately remunerated, that the transfer pricing methods are consistently applied, that accountability and transparency of transactions are ensured and that performance management is enhanced.
Transfer pricing documentation: New Nordic prepares transfer pricing documentation for its various inter-company transactions in order to meet the local transfer pricing documentation requirements of the countries in which the subsidiaries are located.
Governance: The CEO and CFO and his department at New Nordic have sole responsibility for initiating and documenting policies and guidelines for specific tax matters in the group. This tax policy has been discussed and approved by the Board of Directors.
TAX RISKS AND EXTERNAL ADVISORS
New Nordic’s approach is to always maintain a conservative position with respect to managing tax matters. Tax positions occur from a substance, e.g. operational income and doing business in a jurisdiction. Within New Nordic, tax exposures and tax risks can arise for numerous reasons. Typically, tax risks are much more likely to arise in cross-border situations given the multitude of tax jurisdictions as well as interpretational differences between different tax authorities. Apart from the handling of the yearly transfer price policy and benchmarks which are handled by external transfer price tax experts other tax issues can in most cases this can be handled in-house by New Nordic’s own finance department that also handles tax in cooperation with 3rd party national financial and tax advisors. In specific local compliance situations, external tax advisors are used.
TRANSPARENT DIALOGUE WITH TAX AUTHORITIES
New Nordic pays its taxes at the appropriate times and provides any relevant information requested by the appropriate tax authority without delay in order to accurately establish the company’s tax liabilities.
New Nordic strives for good professional and transparent relationships with the tax authorities. New Nordic adheres to local rules and regulations on documentation retention requirements. New Nordic therefore always documents its communications with the tax authorities, which are kept in a separate file in the company’s Masterfile.
As a minimum, each tax-paying entity within the New Nordic group should document and retain all information required to determine the taxable amount and related taxation, such as accounting workbooks and sheets, files and other documentation.
NEW NORDIC CONTRIBUTES BY CREATING JOBS AS WELL AS BY PAYING DIRECT AND INDIRECT TAXES AND OTHER CHARGES IN THE PRODUCTION COUNTRIES
New Nordic does not own any factories, but instead buys its products from independent suppliers in production countries located mainly in Scandinavia but also in Asia and the USA. As New Nordic buys large volumes of herbal raw material, packaging material and manufacturing services and other related products in these countries and worldwide, New Nordic contributes by creating jobs for many people in several countries. In all countries where New Nordic has marketing and service companies, New Nordic purchase considerable amounts om media, warehousing and distribution which also generates which again creates local jobs and business. Tax revenues other than corporate tax are generated in the production countries. New Nordic’s employees at the local representative offices pay income tax and social security payments. New Nordic also contributes other fees such as duties and environmental levies in countries where these are applicable.
Arm’s length principle: According to the arm’s length principle, companies within a multinational group should act as if they are independent of each other, i.e. “at arm’s length”. The international standard that OECD member countries have agreed should be used for determining transfer prices for tax purposes. It is set out in Article 9 of the OECD Model Tax Convention as follows: where “conditions are made or imposed between the two enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then any profits which would, but for those conditions, have accrued to one of the enterprises, but, by reason of those conditions, have not so accrued, may be included in the profits of that enterprise and taxed accordingly”.
Facts about the OECD: The mission of the OECD (Organisation for Economic Co-operation and Development) is to promote policies that will improve the economic and social well-being of people around the world. The OECD provides a forum in which governments can work together to share experiences and seek solutions to common problems. The OECD works with governments to understand what drives economic, social and environmental change. The OECD measures productivity and global flows of trade and investment and analyses and compares data to predict future trends. The OECD sets international standards on a wide range of things, from agriculture and tax to the safety of chemicals.
The OECD Transfer Pricing Guidelines aim to give each country a fair share of a company’s profit under the arm’s length standard as well as protecting companies from double taxation. According to the OECD guidelines, companies within a multinational group should act as if they are independent of each other.
The OECD is presently reviewing part of its Transfer Pricing Guidelines under the G20 “Base Erosion and Profit Shifting” project. For example, new guidance has been published on transfer pricing documentation, including new and more detailed documentation requirements.
The International Chamber of Commerce (ICC) has worked hard in close partnership with organisations such as the OECD and the UN to ensure that the transfer pricing rules are as fair as possible and that no individual countries attempt to circumvent the guidelines drawn up within the OECD by means of local legislation. The issue of when a taxable activity arises (fixed place of business) has also been carefully investigated and elucidated over a number of years. The current practice is recognised and accepted by most countries and legislators around the world.
United Nations (UN): The United Nations Practical Manual on Transfer Pricing for Developing Countries is a response to the need, often expressed by developing countries, for clearer guidance on the policy and administrative aspects of applying transfer pricing analysis to some of the transactions of multinational enterprises (MNEs) in particular. Such guidance should not only assist policy makers and administrators in dealing with complex transfer pricing issues, but should also assist taxpayers in their dealings with tax administrations.