Intel Corporation, which provides most of the world’s PC processors, is alleged to have avoided paying Danish tax by trading with itself at low prices, according to Jyllands-Posten.

According to the report, the Tax Authority claims that group actions have avoided taxes to the tune of DKK 2.5 billion. The Authority is also demanding interest, bringing the total amount being claimed in back taxes to DKK 3.6 billion in what is being termed Denmark’s biggest ever case of transfer pricing.

Transfer pricing is the under-pricing of exports between affiliated companies in different countries in order to transfer profits out of a country and avoid taxes.

Tax expert
Tax Expert Professor Aage Mikkelsen of the Århus Business School says the amount is ‘shocking’.

“If you sell goods to foreign companies affiliated to a group at a loss, Denmark loses a tax opportunity. The Tax Authority has discovered that billions are being moved abroad,” says Mikkelsen.

Intel policy
On its website, Intel says it “supports the work of international organizations, such as the OECD, in their efforts to formulate globally consistent and administratively practical inter-company transfer pricing guidelines”.

“On the global front, international double taxation and inter-company transfer pricing disputes can adversely affect Intel’s business. Therefore, we also must consider these issues when making investment decisions, including the location of our facilities,” it adds.

Giga
According to Jyllands-Posten, the Tax Authority case is built on the purchase by Intel of the Danish IT company Giga in 2000 at DKK 9.4 billion. Two years later Intel sold, among other things, product rights and knowhow to an affiliated company for DKK 1.9 billion, a price that the Tax Authority believes was under the market price. It has therefore increased Intel’s income by DKK 8 billion.

Law
Under Danish fiscal law, multinationals trading within the organisation must do so at market prices in order to avoid channeling profits to a lower tax area.

But in the past four years, the Tax Authority has increased the taxable income for 127 companies by more than DKK 16 billion as a result of transfer pricing.