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April 7th, 2009

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National tax authority SKAT is going after a number of high-profile international companies which it believes have avoided full tax payments by cheaply transferring assets or funds within their organisations.

The system of transfer pricing within companies is a worry for tax authorities concerned that multinational corporations will set transfer prices on international transactions to reduce taxable profits in a particular country.

Over the last four years, SKAT has increased the income statements of 127 companies by a total of 16 billion kroner because it believes that their submitted accounts are too low.

International IT giant, Intel Corporation is currently being pursued by SKAT for 2.5 billion kroner, which comes to 3.6 billion kroner with interest.

The case against Intel stems from its purchase of Danish company Giga in 2000 in a 9.4 billion kroner transaction. The high price was largely attributed to immaterial assets such as product rights and knowhow. These assets were later sold abroad to an Intel sister company for 1.9 billion kroner in 2002.

SKAT first reacted to the manoeuvre in 2007 and said the company’s taxable income should be increased by 8 billion kroner, resulting in a tax billion of 3.6 billion kroner in all.

Intel has disputed the claim and according to Gerhard Albrechtsen, the then- managing director of NKT, which sold Giga to Intel, it may have a valid reason to do so.

Albrechtsen said the market fell apart after the sale and there was no demand for the Giga technology and products which Intel had counted on. When NKT sold Giga in 2000, the telecommunications index on the Nasdaq was at 1,103. In January 2002, when Intel sold the assets abroad, the index had fallen to 242.55 – a drop of almost 80 percent.

Intel began reducing activity at Giga starting in 2002 and by 2006 the decision was taken to close the division.

Both Intel and SKAT declined to comment on the case, which has been brought before the Danish National Tax Tribunal.