Limits to Tax Planning

S. 1371. Introduction

In a world with growing globalization, multinational enterprises are getting a more important role in world’s economy. They are acting globally and therefore are engaged in international business transactions. By doing that, multinational enterprises try to maximize profits, minimize the overall tax burden and at the same time look for economic efficiency. They mainly transfer goods and services cross border between related companies due to the centralization of operations and in addition try to exploit differences in order to achieve an economic advantage. As a consequence, transactions between related companies are growing all over the world and transfer pricing is becoming more and more important. Transfer pricing rules are laid down in national law, supported by bilateral tax treaties based on the OECD Model Tax Convention and by decisions of the European Court of Justice and should serve as a tool to prevent tax avoidance. These rules should prevent multinational enterprises from shifting profits from a high into a low tax jurisdiction, secure the exit taxation of hidden reserves in the case of business restructurings and identify profits leaving a tax jurisdict...