FIN7006 Global Issues in Taxation Assignment Example
FIN7006 Global Issues in Taxation Assignment Brief
Assignment Instructions Overview
This assignment requires students to critically analyze contemporary issues in international taxation, with a particular focus on transfer pricing, Base Erosion and Profit Shifting (BEPS), and the use of debt in tax planning by multinational enterprises. The tasks involve evaluating case law, OECD initiatives, and regulatory responses while applying theoretical and practical perspectives to taxation challenges faced by global businesses. The assignment is designed to demonstrate a deep understanding of international taxation principles and their implications for ethical and responsible global practice.
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Understanding Assignment Objectives
The primary objective of this assignment is to strengthen students’ ability to:
- Interpret and apply the principles of international taxation in real-world scenarios.
- Critically examine how multinational corporations design tax structures and the challenges these pose to regulators and tax authorities.
- Evaluate international tax planning strategies, including the use of transfer pricing and debt financing, and analyze their consequences on global tax equity.
- Discuss the OECD’s BEPS project, with a focus on Action 13 (transfer pricing documentation) and Action 4 (limiting base erosion through interest deductions).
- Reflect on the ethical, legal, and economic dimensions of taxation in a globalized economy.
The Student’s Role
Students are expected to demonstrate independent research, critical thinking, and analytical reasoning. The role includes:
- Engaging with academic literature, legal rulings, and OECD guidance to support arguments.
- Balancing theoretical concepts with practical applications in taxation.
- Developing clear, well-structured, and logically presented arguments.
- Demonstrating awareness of ethical considerations and responsible global citizenship in taxation practices.
- Producing work that reflects postgraduate-level scholarship, originality, and clarity.
Competencies Measured
This assignment measures the following competencies:
- Knowledge Competence – Ability to identify and explain principles of international taxation, tax planning strategies, and the role of BEPS.
- Analytical Competence – Skill in evaluating tax structures, interpreting complex case studies, and applying OECD recommendations to mitigate risks of tax avoidance.
- Critical Thinking – Capacity to critique aggressive tax planning, debt shifting, and transfer pricing manipulation, offering balanced perspectives.
- Research Competence – Effective use of scholarly sources, legal judgments, and policy frameworks to support academic arguments.
- Ethical Competence – Recognition of fairness, accountability, and responsible practice in global taxation, particularly in relation to digital economies and cross-border trade.
FIN7006 Global Issues in Taxation Assignment Example
Executive Summary
This paper critically examines two central issues in international taxation: transfer pricing and debt financing, both of which remain dominant strategies used by multinational enterprises (MNEs) to reduce their effective tax burdens. The analysis is situated within the framework of the Organisation for Economic Co-operation and Development’s (OECD) Base Erosion and Profit Shifting (BEPS) project, specifically Action 13 (transfer pricing documentation and transparency) and Action 4 (interest deduction limitations).
The first section evaluates the Netherlands vs. MC Parts B.V. (2024) case, which demonstrates how transfer pricing disputes extend beyond corporate taxation to influence customs valuation. The case highlights the complexity of determining arm’s-length pricing in intra-group transactions, particularly where services, profit adjustments, and customs duties intersect. Transfer pricing remains a critical issue because of its potential to shift profits artificially, generate conflicts between tax and customs authorities, and erode public revenue—particularly in developing countries. The analysis finds that BEPS Action 13 has significantly enhanced transparency through country-by-country reporting, master files, and local files, enabling tax administrations to identify profit-shifting risks. However, while it strengthens global accountability, Action 13 also imposes compliance costs on firms and requires robust enforcement mechanisms to achieve full effectiveness.
The second section explores how multinationals use debt financing as a tax planning tool. Strategies such as thin capitalisation, earnings stripping, hybrid mismatches, and double dipping allow firms to exploit the tax-deductibility of interest payments, leading to base erosion in high-tax jurisdictions. The OECD’s BEPS Action 4 addresses these practices by introducing fixed and group ratio rules, limiting excessive interest deductions relative to earnings. The analysis concludes that while Action 4 enhances consistency and reduces earnings stripping opportunities, its implementation across jurisdictions remains uneven, and challenges persist for highly leveraged or capital-intensive industries.
Taken together, the findings emphasise that both transfer pricing and debt financing pose enduring threats to global tax equity and fiscal sustainability. The BEPS framework has provided meaningful reforms, but its effectiveness depends on consistent implementation, international cooperation, and ongoing adaptation to evolving business models, including the digital economy. Beyond technical measures, the paper underscores the ethical dimension of corporate tax behaviour, arguing that responsible global citizenship requires MNEs to contribute fairly to the societies in which they operate.
You Can Also Check Other Related Assessments for the Executive MBA (Finance) Course:
FIN7007 Managing Strategic Finance and Risk Assignment Example
Question 1: Transfer Pricing and Action 13 of the BEPS Project
Introduction
Transfer pricing is one of the most complex and debated issues in international taxation. It deals with the pricing of transactions between related entities within a multinational enterprise (MNE). These transactions include the sale of goods, services, intangibles, or financial arrangements. While transfer pricing rules are meant to ensure that related entities transact at an arm’s length basis, the practice is often exploited to shift profits across borders. Such manipulation can significantly reduce the overall tax liability of multinational groups, thereby eroding tax bases in high-tax jurisdictions (OECD, 2022).
The case of Netherlands vs MC Parts B.V. (2024) illustrates the difficulties in applying transfer pricing principles consistently across different areas of taxation, specifically customs valuation and corporate tax. The dispute arose from a transfer pricing adjustment that was later challenged by tax authorities, who argued that payments linked to related-party imports should form part of the customs value. This conflict highlights the dual role of transfer pricing not only in corporate taxation but also in customs, trade, and global revenue collection.
This discussion critically evaluates why transfer pricing remains a central challenge in international taxation, using the MC Parts B.V. case as a reference point. It also explores the role of the OECD’s Base Erosion and Profit Shifting (BEPS) Project, particularly Action 13, in promoting transparency and curbing abusive practices. The analysis will demonstrate how Action 13 has attempted to align global tax practices, encourage accountability, and address information asymmetry between taxpayers and tax authorities.
- Transfer Pricing as a Critical Issue in International Taxation
1.1 Defining Transfer Pricing and its Global Relevance
Transfer pricing refers to the pricing arrangements for intra-group transactions between related parties of a multinational group. According to the OECD Transfer Pricing Guidelines (2022), such prices must reflect what would have been agreed between independent entities in comparable circumstances, commonly referred to as the arm’s length principle. The principle is designed to prevent related parties from manipulating prices in a way that shifts taxable profits away from the jurisdictions where economic activity actually occurs (Eden, 2021).
Transfer pricing is globally significant for several reasons:
Revenue Protection: National tax authorities depend on corporate tax revenues. Manipulated transfer pricing reduces these revenues by shifting profits into low-tax jurisdictions.
Double Taxation and Double Non-Taxation: Inconsistent application of transfer pricing rules across jurisdictions can lead to double taxation of the same income or, conversely, double non-taxation.
Global Trade: Over 60% of global trade occurs between related entities (UNCTAD, 2020). This makes transfer pricing a central issue in both taxation and trade policy.
Ethical and Governance Dimensions: Aggressive transfer pricing practices undermine fair competition and contribute to perceptions of tax injustice, especially in developing economies (Cobham and Janský, 2022).
Thus, transfer pricing sits at the intersection of tax policy, global business strategy, and ethical responsibility.
1.2 Transfer Pricing Challenges: The Case of MC Parts B.V.
The case of Netherlands vs MC Parts B.V. illustrates how transfer pricing disputes arise when different authorities interpret intra-group payments differently.
Case Summary:
MC Parts B.V., a Dutch subsidiary, engaged in distribution and support services for its multinational group.
The company’s pricing model included a 3.1% operating margin for distribution and a 5% markup for support services.
In 2016, the firm paid €20,091,000 as a transfer pricing adjustment, of which €19,388,000 was invoiced, with €703,000 reserved for customs duties.
When MC Parts sought a customs refund in 2020, authorities denied it, ruling that the payment formed part of the customs value of goods imported, not merely support services.
The authorities reasoned that:
The invoice adjustment directly related to imported goods, supported by the customs reserve.
The Hamamatsu precedent cited by MC Parts was irrelevant because the contractual conditions differed.
The payment thus constituted a post-importation adjustment that should have been included in customs value.
Analysis of Issues:
The dispute shows the overlap between transfer pricing and customs valuation. While corporate tax law focuses on income allocation, customs law focuses on goods valuation. The same intra-group payment may be treated differently in each regime, creating conflict. For MC Parts, the payment designed to align profits with group transfer pricing policy was reinterpreted by customs authorities as part of the purchase price of goods.
This raises broader concerns:
Complexity: Multinationals face difficulty aligning customs and tax transfer pricing rules.
Risk of Double Payment: Adjustments may increase both customs duties and corporate taxes.
Regulatory Arbitrage: Companies may structure contracts to exploit inconsistencies across jurisdictions.
Cases like this demonstrate why transfer pricing disputes are not merely technical but also reflect deeper systemic issues in global taxation.
1.3 Transfer Pricing and International Taxation Challenges
Transfer pricing disputes highlight systemic challenges in international taxation.
Profit Shifting and Base Erosion: Multinationals can shift profits into low-tax jurisdictions through transfer pricing adjustments, undermining tax bases in high-tax economies. The International Monetary Fund (IMF, 2019) estimates global revenue losses from BEPS to be between 4%–10% of worldwide corporate tax revenues.
Information Asymmetry: Tax authorities often lack access to complete financial data on multinationals’ global operations. This makes it difficult to verify whether intra-group transactions meet the arm’s length principle (Pogge and Mehta, 2019).
Dispute Proliferation: The rise of cross-border disputes has burdened tax courts, as in the MC Parts case. These disputes often involve overlapping legal frameworks — transfer pricing, customs, VAT, and corporate tax.
Developing Country Vulnerability: Developing economies, with weaker administrative capacity, face the highest revenue losses from aggressive transfer pricing (Fuest et al., 2020).
These challenges explain why transfer pricing remains central to debates on tax justice, sovereignty, and global economic governance.
- The OECD BEPS Project and Action 13
2.1 The OECD BEPS Project
The Base Erosion and Profit Shifting (BEPS) Project, initiated by the OECD and endorsed by the G20 in 2013, is the most ambitious reform of international taxation in decades. It aims to close gaps in international tax rules that allow for profit shifting and artificial arrangements. The BEPS framework includes 15 actions, ranging from addressing hybrid mismatches to preventing treaty abuse (OECD, 2015).
Transfer pricing is at the heart of BEPS. Multiple actions target pricing abuses, including Action 8–10 (aligning transfer pricing with value creation) and Action 13 (enhancing documentation and reporting). These reforms collectively aim to make global taxation more transparent, consistent, and equitable.
2.2 Action 13: Country-by-Country Reporting
Overview:
Action 13 introduced a new global standard for transfer pricing documentation:
Master File: Provides an overview of the MNE group’s global business, transfer pricing policies, and allocation of income.
Local File: Contains detailed information on material transactions of the local entity.
Country-by-Country (CbC) Report: Requires large MNEs (with consolidated revenue over €750 million) to disclose annually key financial data for each jurisdiction, including revenues, profits, taxes paid, and employees.
Objective: To provide tax authorities with a complete picture of where profits, taxes, and economic activities occur across jurisdictions (OECD, 2022).
2.3 Action 13 and the MC Parts B.V. Case
The MC Parts dispute underscores why Action 13 is crucial.
If authorities had access to a CbC report, they could more easily assess whether the €19,388,000 adjustment aligned with the group’s global value creation.
The transparency introduced by Action 13 helps resolve information asymmetry, reducing reliance on unilateral adjustments that create disputes.
It also prevents cases where taxpayers argue that adjustments are unrelated to imports while authorities insist otherwise.
In essence, Action 13 fosters consistency in interpretation and strengthens the evidence base for evaluating transfer pricing adjustments.
2.4 Broader Implications of Action 13
Improved Transparency: Governments can detect misalignments between reported profits and economic activity.
Deterrence of Aggressive Tax Planning: Multinationals are less likely to engage in profit shifting if disclosures reveal inconsistencies.
Global Cooperation: CbC reporting requires information exchange between jurisdictions, fostering greater cooperation.
Ethical Accountability: It enhances corporate responsibility and aligns tax practices with global citizenship values (Christensen and Hearson, 2019).
- Ethical and Governance Considerations
Transfer pricing is not just a technical matter; it carries ethical implications.
Equity: When MNEs shift profits, smaller domestic firms shoulder a heavier tax burden.
Trust in Tax Systems: Public trust declines if multinationals are perceived to avoid taxes while individuals face strict compliance.
Global Inequality: Developing economies suffer disproportionately, widening global inequality (Cobham and Janský, 2022).
Action 13 plays a governance role by pushing for corporate accountability, fairness, and transparency, which are core elements of responsible global citizenship.
Conclusion
The case of MC Parts B.V. highlights why transfer pricing remains one of the most critical challenges in international taxation. The overlap between customs valuation and transfer pricing underscores the complexity of aligning rules across jurisdictions. Broader issues such as profit shifting, double taxation, and information asymmetry demonstrate the systemic importance of transfer pricing disputes.
The OECD’s BEPS framework, particularly Action 13, represents a major step forward. By requiring comprehensive documentation and country-by-country reporting, Action 13 strengthens transparency, reduces opportunities for profit shifting, and supports global cooperation. Beyond technical fixes, it promotes ethical responsibility and tax fairness in an increasingly globalised economy.
Transfer pricing will remain a contentious issue as business models evolve, especially with the rise of the digital economy. However, the implementation of Action 13 offers a pathway toward more consistent, transparent, and equitable taxation across the world.
Question 2: Multinational Use of Debt and OECD Action 4
Introduction
The strategic use of debt financing by multinational enterprises (MNEs) is one of the most common and controversial methods of international tax planning. Unlike equity, interest payments on debt are generally tax-deductible, which provides strong incentives for multinational groups to structure their financing arrangements in ways that minimise overall tax liabilities. By shifting debt into high-tax jurisdictions and allocating equity to low-tax jurisdictions, MNEs reduce their global effective tax rate (ETR) and maximise after-tax profits (Johannesen et al., 2020).
This practice, however, erodes national tax bases and undermines the fairness of tax systems. It creates distortions in corporate decision-making and increases pressure on domestic firms and individuals who cannot access similar cross-border planning opportunities. In response, the Organisation for Economic Co-operation and Development (OECD), under the Base Erosion and Profit Shifting (BEPS) initiative, introduced Action 4, which specifically addresses interest deductions and financial payments.
This discussion critically evaluates how MNEs use debt to reduce effective tax rates and analyses the OECD’s Action 4 framework as a solution to base erosion. The analysis explores techniques of debt-based tax planning, ethical considerations, and the strengths and limitations of Action 4 in creating a fairer international tax system.
- Debt Financing in International Taxation
1.1 Debt Versus Equity
In most tax systems, interest payments on debt are deductible from taxable income, while dividends paid on equity are not. This asymmetry incentivises corporations to finance with debt rather than equity, a phenomenon referred to as the debt bias (Keen, Klemm and Perry, 2020). Multinationals exploit this asymmetry across jurisdictions by carefully structuring intra-group financing arrangements to shift profits.
For example:
Subsidiary A (in a high-tax country) borrows heavily from Subsidiary B (in a low-tax country).
Subsidiary A deducts interest expenses, lowering taxable income in the high-tax jurisdiction.
Subsidiary B recognises interest income in a low-tax jurisdiction, often benefiting from preferential regimes or tax treaties.
This results in significant tax savings without any corresponding change in the group’s overall economic position.
1.2 Common Debt-Based Tax Planning Techniques
Multinationals employ a range of strategies to exploit debt deductibility:
Thin Capitalisation: Subsidiaries in high-tax countries are funded primarily with debt rather than equity, ensuring maximum deductions. Prior to reforms, some firms achieved debt-to-equity ratios exceeding 10:1.
Earnings Stripping: Excessive intra-group loans are used to strip taxable profits from high-tax jurisdictions. By inflating interest expenses, MNEs shift income abroad.
Hybrid Mismatches: MNEs exploit differences in tax treatment across jurisdictions. For instance, a hybrid instrument may be treated as debt in one country (allowing interest deduction) but as equity in another (tax-exempt income).
Use of Special Purpose Entities (SPEs): MNEs establish financing entities in jurisdictions with preferential tax regimes (e.g., Luxembourg, Ireland) to centralise intra-group lending.
Double Dipping: Structures are arranged so that the same interest expense is deducted in more than one jurisdiction, further eroding tax bases.
Empirical evidence shows the scale of the problem. According to the IMF (2019), countries lose an estimated $500 billion annually to profit shifting, with interest deductions being a major channel.
1.3 Illustrative Examples
Real-world cases demonstrate how debt planning operates:
Starbucks (UK): Investigations revealed that Starbucks UK paid little corporate tax for years, partly by paying substantial royalties and intra-group charges, including interest, to affiliates in low-tax jurisdictions (House of Commons, 2012).
Apple (Ireland): Though more famous for its intellectual property strategies, Apple also engaged in intra-group financing structures, exploiting low-tax regimes for financial flows (Cobham and Janský, 2022).
These cases highlight the blurred lines between legal tax planning and aggressive tax avoidance.
- The OECD’s BEPS Action 4
2.1 Overview
Action 4: Limiting Base Erosion Involving Interest Deductions and Other Financial Payments was introduced as part of the OECD’s 2015 BEPS Action Plan. Its purpose is to prevent profit shifting through excessive interest deductions and similar payments, ensuring that multinational financing reflects genuine business needs rather than tax avoidance motives (OECD, 2015).
2.2 Core Recommendations of Action 4
Action 4 provides several mechanisms:
Fixed Ratio Rule: Limits interest deductions to a set percentage of an entity’s earnings before interest, taxes, depreciation, and amortisation (EBITDA). The OECD recommends a range of 10%–30%. For example, if a subsidiary’s EBITDA is €10 million and the jurisdiction sets a cap at 30%, deductible interest is limited to €3 million.
Group Ratio Rule: Allows entities in highly leveraged groups to deduct more interest if they can demonstrate that their level of external debt mirrors the global group’s structure. This prevents penalising genuinely debt-intensive industries, such as infrastructure.
Carry Forward and Carry Back Provisions: To accommodate business cycles, excess interest disallowed in one year can be carried forward (or back) to offset taxable income in other years.
Targeted Rules Against Specific Risks: Supplementary rules address risks not fully covered by the fixed ratio rule, such as interest paid on related-party debt or payments to entities in tax havens.
2.3 Alignment with Other BEPS Actions
Action 4 complements other BEPS measures:
Action 2 (Hybrid Mismatches): Prevents double deductions of interest.
Action 3 (Controlled Foreign Companies): Limits shifting of profits through offshore affiliates.
Action 13 (Transfer Pricing Documentation): Provides transparency on financial flows.
Together, these measures form a comprehensive framework against financial base erosion.
- Strengths of Action 4
Action 4 has introduced significant improvements in global tax governance:
Limiting Arbitrary Deductions: By capping interest deductions relative to EBITDA, countries reduce opportunities for earnings stripping (KPMG, 2020).
Consistency Across Jurisdictions: The OECD recommendation creates a common standard, reducing risks of regulatory arbitrage.
Balancing Fairness and Business Needs: The group ratio rule ensures genuine financing arrangements are not unfairly penalised.
Administrative Simplicity: A fixed percentage cap is easier to enforce than complex case-by-case assessments of debt arrangements.
- Limitations and Criticisms of Action 4
Despite its benefits, Action 4 faces several challenges:
Arbitrary Ratios: The 10%–30% EBITDA cap may not reflect industry realities. Capital-intensive sectors such as airlines or utilities may be disproportionately affected (PwC, 2021).
Compliance Burden: Multinationals must prepare extensive documentation to justify group ratio exceptions, increasing compliance costs.
Implementation Gaps: Not all jurisdictions have adopted Action 4 uniformly. For instance, the United States’ Tax Cuts and Jobs Act (2017) introduced similar limits, but some developing economies still lack robust interest deduction rules.
Residual Opportunities for Avoidance: MNEs may shift from debt-based planning to alternative tax avoidance methods, such as exploiting intellectual property or digital business models.
Impact on Investment: Some argue that limiting interest deductions may discourage genuine foreign direct investment (Fuest et al., 2020).
- Broader Implications and Ethical Dimensions
The manipulation of debt financing is not merely a technical tax issue but raises broader questions of fairness, sovereignty, and global responsibility.
Fairness: Excessive deductions by MNEs shift the tax burden onto smaller domestic firms and individuals who lack such planning opportunities (Christensen and Hearson, 2019).
Sovereignty: Developing countries are disproportionately affected by interest stripping because they rely more heavily on corporate income taxes. Action 4 provides them with a stronger basis to defend tax revenues.
Corporate Responsibility: Ethical business conduct requires MNEs to contribute fairly to the jurisdictions where they operate. Aggressive tax planning through debt undermines this principle.
Responsible Global Citizenship: By supporting Action 4, countries commit to a more equitable international tax system that recognises the interdependence of economies.
Conclusion
Multinationals have long exploited debt financing to reduce their effective tax rates, using strategies such as thin capitalisation, hybrid mismatches, and earnings stripping. These practices undermine tax fairness, erode national revenues, and intensify global inequality.
The OECD’s BEPS Action 4 represents a significant step forward in addressing this issue. By limiting interest deductions through fixed and group ratio rules, and by aligning with other BEPS actions, it curbs opportunities for abusive debt-based planning. However, challenges remain, particularly regarding implementation consistency, administrative burdens, and residual opportunities for avoidance.
Ultimately, Action 4 should be viewed not only as a technical reform but also as part of a broader movement toward ethical, transparent, and responsible taxation. In combination with other BEPS measures, it contributes to creating a global tax environment that balances competitiveness with fairness, protecting the tax bases of both developed and developing economies.
References
Christensen, R. C. and Hearson, M. (2019). The OECD’s BEPS Project and Developing Countries. Journal of International Business Policy, 2(2), pp. 148–162.
Cobham, A. and Janský, P. (2022). Global Distribution of Revenue Losses from Tax Avoidance. International Tax and Public Finance, 29(1), pp. 1–23.
Eden, L. (2021). Transfer Pricing: Concepts and Practices. Cambridge: Cambridge University Press.
Fuest, C., Parenti, M. and Zucman, G. (2020). Multinational Profit Shifting and Tax Base Erosion: Evidence from OECD Countries. Fiscal Studies, 41(3), pp. 443–472.
International Monetary Fund (IMF). (2019). Corporate Taxation in the Global Economy. Washington: IMF.
Johannesen, N., Tørsløv, T. and Wier, L. (2020). Are Less Developed Countries More Exposed to Multinational Tax Avoidance? Method and Evidence from Micro-Data. World Bank Economic Review, 34(3), pp. 434–455.
Keen, M., Klemm, A. and Perry, V. (2020). Debt Bias and the Global Tax Reform Agenda. IMF Working Paper No. 20/68.
KPMG. (2020). OECD BEPS Action 4: Limiting Interest Deductions. KPMG International.
OECD. (2015). Aligning Transfer Pricing Outcomes with Value Creation: Actions 8–10, 13 – 2015 Final Reports. Paris: OECD Publishing.
OECD. (2022). Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations. Paris: OECD Publishing.
PwC. (2021). The Future of International Tax: OECD BEPS 2.0 and Beyond. PwC Global Tax Insights.
UNCTAD. (2020). World Investment Report 2020: International Production Beyond the Pandemic. New York: United Nations.
Detailed Assessment Instructions for the FIN7006 Global Issues in Taxation Assignment
FIN7006
Global Issues in Taxation ASSESSMENT
Date for Submission: Please refer to the timetable on ilearn
(The submission portal on ilearn will close at 14:00 UK time on the date of submission)
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As part of the formal assessment for the programme you are required to submit a Global Issues in Taxation assignment. Please refer to your Student Handbook for full details of the programme assessment scheme and general information on preparing and submitting assignments.
Learning Outcomes:
After completing the module, you should be able to:
- Identify an understand the Principles of International Taxation
- Explain and evaluate legal tax structures and their impact
- Explain the following concept: Tax planning, aggressive tax planning, tax avoidance and tax compliance.
- Analise the fifteen actions of the BEPS Plan and their main outcomes across the world
- Discuss the importance and relation of the Digital Economy –the new way of doing business and Digital Taxation (GA) Responsible Global Citizenship: understand global issues and their place in a globalised economy, ethical decision-making, and accountability. Adopt self-awareness, openness, and sensitivity to diversity in culture
All learning outcomes must be met to pass the module.
Your assignment should include: a title page containing your student number, the module name, the submission deadline and the exact word count of your submitted document; the appendices if relevant; and a reference list in (see referencing section for more information). You should address all the elements of the assignment task listed below. Please note that tutors will use the assessment criteria set out below in assessing your work.
You must not include your name in your submission because Arden University operates anonymous marking, which means that markers should not be aware of the identity of the student. However, please do not forget to include your STU number.
Maximum word count: 5000 words
Please refer to the full word count policy which can be found in the Student Policies section here: Arden University | Regulatory Framework.
Please note the following: Students are required to indicate the exact word count on the title page of the assessment.
The word count includes everything in the main body of the assessment (including in text citations and references). The word count excludes numerical data in tables, figures, diagrams, footnotes, reference list and appendices. ALL other printed words ARE included in the word count.
Please note that exceeding the word count by over 10% will result in a 10-percentage point deduction.
Assignment Task
Answer ALL Questions Question 1
“MC Parts B.V.” is a subsidiary of a multinational group with two primary functions: acting as a distributor of spare parts and accessories, and providing support services including technical, marketing, and logistics support. The company’s transfer pricing documentation outlines that it earns revenue from its distribution activities based on a 3.1% operating margin and from its support services based on cost plus a 5% profit mark-up.
In the relevant fiscal year, “MC Parts B.V.” was required to make a transfer pricing adjustment payment of €20,091,000 to group company 2, of which €19,388,000 was invoiced on 31 March 2016. This invoice factored in sales margins, operating profit, and a reserve of
€703,000 for additional import duties, resulting in a lower invoiced amount.
In 2020, “MC Parts B.V.” applied for a refund of €711,221 in customs duties, which was rejected by the tax authorities on 11 March 2021. The authorities argued that the €19,388,000 payment was part of the customs value of the imported goods and should be calculated using the transaction value method. Alternatively, they suggested that if the transaction value method was inapplicable, a reasonable means method consistent with the transfer pricing agreement should be used due to a notional low transfer price between the companies.
The authorities highlighted that the payment to company 2 was related to imported goods, supported by the March 2016 invoice reserving €703,000 for customs duties. They concluded that the invoice did not cover support services but rather an after-payment for goods, countering “MC Parts B.V.”‘s claim that the higher profit margin was unrelated to the purchase price. The Hamamatsu judgment cited by “MC Parts B.V.” was deemed irrelevant due to differences in adjustment methods and contractual agreements. Consequently, the tax authorities upheld the adjustment of the customs value, dismissing “MC Parts B.V.”‘s appeal.
Netherlands vs “MC Parts B.V.”, February 2024, North Holland District Court, Case No AWB – 21 _ 460
Considering the relevant case law details mentioned above, can you critically discuss why transfer pricing remains a critical issue in international taxation and discuss the role of Action 13 of the BEPS project in this context?
(3000 Words)
(70 Marks)
(LOs: 1,2,3,4)
Question 2
Critically describe how multinationals use debt to reduce the effective tax rate of the worldwide group and explain the OECD’s Action 4 solutions to address this issue.
(2000 Words)
(30 Marks)
(LOs: 1,2,3,4,5)
Formative Feedback
You have the opportunity to submit a draft to receive formative feedback.
The feedback is designed to help you develop areas of your work and it helps you develop your skills as an independent learner.
If you are a distance learning student, you should submit your work, by email, to your tutor, no later than 2 weeks before the actual submission deadline. If you are a blended learning student, your tutor will give you a deadline for formative feedback and further details.
Formative feedback will not be given to work submitted after the above date or the date specified by your tutor – if a blended learning student.
Referencing Guidance
You MUST underpin your analysis and evaluation of the key issues with appropriate and wide ranging academic research and ensure this is referenced using the AU Harvard system(s).
Follow this link to find the referencing guides for your subject: Arden Library
Submission Guidance
Assignments submitted late will not be accepted and will be marked as a 0% fail.
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You must ensure that the submitted assignment is all your own work and that all sources used are correctly attributed. Penalties apply to assignments which show evidence of academic unfair practice. (See the Student Handbook which is available on the A-Z key information on iLearn.)
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