Transfer Pricing

1. Invest in America – SelectUSATransfer Pricing & Expatriate Tax IssuesSara Gustafsson / Aino Askegård Andrésen28 September 2011

2. Transfer Pricing Transfer Pricing Sweden United States Sweden - US Double Tax Treaty OECD Guidelines Domestic Tax legislation FIN 48 IRS §482

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

4. 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 transactionunder the same circumstances? Analyze comparable transactionsunder comparable circumstances What Exactly is "Arm's Length"?

5. 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 fornoncompliance with the transfer pricing regulations Importance of Worldwide Transfer Pricing

6. 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. Identifying Arm's Length Full Range q1 q2 q3 q4 Inter Quartile Range

7. US: Choose the best method Sweden: Choose the most appropriate method Method selection will depend upon: Type of transaction Information available Other countries involved Choosing the Best Method

8. Methods to Test Arm's Length

9. Structure of your investment Who should own IP created? Financing options? Allocation of functions and risks Distributor? Commission? Full fledged or limited risk? Tax Planning Opportunity!

10. Invest in America - SelectUSAExpatriate Tax Issues Aino Askegård Andrésen28 September 2011

11. Moving employees from Sweden to the US• Tax• Social Security• Practical issues

12. Tax – Employees become tax residents both in Sweden and in the US Sweden US • Tax Residency • Domicile • Connection • Tax Residency • Presence • Work

13. Swedish Tax issues US employment income exempted from taxationin 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

14. 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)

15. 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 world- wide 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!

16. 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

17. 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

18. Social Security Swedish rate ER 31.42% EE 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

19. 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 =

20. In Sweden Assignment letter Preliminary taxes Reporting Pension Social Security Cost allocation In the US Preliminary taxes and reporting Social Security Tax Planning in Advance Practical issues to consider for employer

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25. 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

26. Thank you for your attention!