Peter Baumgartner, FIAS Transfer Pricing Flagship Event, 13 November 2012 Transfer Pricing in Developing Countries Priorities and concerns of foreign investors and the private sector Dr. Peter Baumgartner former CEO of SwissHoldings

Peter Baumgartner, FIAS Transfer Pricing Flagship Event, 13 November 2012 Introduction Experiences of Swiss MNEs in developing countries Opportunities of transfer pricing reforms 3 measures to improve the handling of transfer pricing Challenges for developing countries regarding transfer pricing Introduction and topics Expectations of foreign investors 5 2

Peter Baumgartner, FIAS Transfer Pricing Flagship Event, 13 November 2012 Experiences of Swiss MNEs in developing countries Broad support for international initiatives on capacity building regarding taxation in developing countries:  Views of large Swiss MNEs such as ABB, Nestlé, Novartis, Holcim, etc. Transfer pricing is important for MNEs:  Integrated business models (> 50% intra-group dealings)  Global transfer pricing strategies  Standardised transfer pricing documentation  Sector and activity specific transfer pricing issues: Sales, commissionaire structures, central costs, R&D, intangibles, financing, etc. 3

Peter Baumgartner, FIAS Transfer Pricing Flagship Event, 13 November 2012 Frequently heard complaints about the tax situation in developing countries  NNEs pay more than they should – simply to avoid disputes and lengthy litigation  Lack of legal security: Rules, process, disputes  Lack of understanding how MNEs operate  Lack of sufficient knowledge on transfer pricing models for specific activities  High and burdensome administrative and unrealistic documentation requirements 4

Peter Baumgartner, FIAS Transfer Pricing Flagship Event, 13 November 2012 Expectations of foreign investors General approach of foreign direct investors:  MNEs want to do business: Production and sales  MNEs want to be “good citizens”: Compliance with existing rules, avoidance of reputational risks, behaviour as responsible employers (CSR)  Taxes are seen as an important cost factor (reduces profits) Legal security:  Vital element of a good investment climate for MNEs Tax framework:  Rules must be clear and understandable  Countries should follow internationally accepted standards (e.g. “arm’s length principle” enshrined in all double tax treaties) 5

Peter Baumgartner, FIAS Transfer Pricing Flagship Event, 13 November 2012 Opportunities of transfer pricing reforms Transfer pricing reforms will result in:  A better investment climate  More legal security for business  Higher and constant flows of tax revenue Transfer pricing reforms should fulfil both the expectations of tax authorities and of foreign investors:  Creation of a good investment and tax climate  Reliable rules and consistency in their application  Possibilities to avoid and to solve conflicts 6

Peter Baumgartner, FIAS Transfer Pricing Flagship Event, 13 November 2012 Challenges for developing countries regarding transfer pricing Creation of a climate of “good governance” in general:  Respect of the “rule of the law” on all levels Better understanding of business models of MNEs:  Basic knowledge on transfer pricing as prerequisite  Discussion with MNEs on the tax situation (creation of a climate of mutual trust, transparency on side of MNEs) Sufficient human resources and knowledge to handle transfer pricing issues:  Capacity building and training of tax inspectors  Sharing of experiences with other tax authorities and (to a limited extent) exchange of tax information 7

Peter Baumgartner, FIAS Transfer Pricing Flagship Event, 13 November measures to improve the handling of transfer pricing by developing countries Analyse and understand the role of transfer pricing for the country:  Focus on country and sector specific transfer pricing requirements regarding exposure, training and resources Rely on existing international standards:  Tax treaties, TP guidelines and TP manuals – 2 countries are involved Seek the dialogue with important tax payers:  MNEs and tax authorities have a common interest in stable and reliable tax conditions, flows of revenue and conflict settlement tools 8

Peter Baumgartner, FIAS Transfer Pricing Flagship Event, 13 November 2012 Thank you for your attention 9

Peter Baumgartner, FIAS Transfer Pricing Flagship Event, 13 November 2012 Dr. Peter Baumgartner, dr ès sc. pol., Geneva former CEO of SwissHoldings, Berne Peter Baumgartner acted from 2005 until end of 2011 as CEO and director of SwissHoldings, a federation of more than 50 large industrial and service groups (MNEs) in Switzerland. He now works as consultant and lecturer at Universities in Switzerland and in Vienna. Peter Baumgartner studied economics, law and political science at the Universities of St. Gallen and Geneva. Prior to his engagement with the business federation “SwissHoldings” in 1990, he worked for nearly 10 years at the International Division of the Federal Tax Administration in Berne. At SwissHoldings, he was responsible for all domestic and international tax matters. He represented the Swiss economy in bilateral tax treaty negotiations as well as in domestic and various international organisations: International Chamber of Commerce (ICC, chair of the Tax Commission), Business and Industry Advisory Committee to the OECD (BIAC, vice-chair of the Tax Committee), BusinessEurope (BE, member of the Tax Policy Group), International Fiscal Association (IFA, board member of the Swiss Branch). Since many years he attends the meetings of the UN Committee of Experts on International Cooperation in Tax Matters (as observer for ICC). 10