1. © 2011 Grant Thornton. All rights reserved Invest in America – SelectUSA Transfer Pricing & Expatriate Tax Issues Sara Gustafsson / Aino Askegård Andrésen 28 September 2011

2. 2 © 2011 Grant Thornton. All rights reserved Transfer Pricing Sweden United States IRS §482 FIN 48 OECD Guidelines Domestic Tax legislation Sweden - US Double Tax Treaty

3. 3 © 2011 Grant Thornton. All rights reserved 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 US Subsidiary Services Goods IP Financing

4. 4 © 2011 Grant Thornton. All rights reserved 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 transaction under the same circumstances? Analyze comparable transactions under comparable circumstances What Exactly is "Arm's Length"?

5. 5 © 2011 Grant Thornton. All rights reserved 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 for noncompliance with the transfer pricing regulations Importance of Worldwide Transfer Pricing

6. 6 © 2011 Grant Thornton. All rights reserved 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 q1q2q3q4 Inter Quartile Range Full Range

7. 7 © 2011 Grant Thornton. All rights reserved 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. 8 © 2011 Grant Thornton. All rights reserved Methods to Test Arm's Length SwedenUS Comparable Uncontrolled Price Method ("CUP")X X Resale Price Method ("RPM") XX Cost Plus Method ("CP") X X Comparable Profits Method ("CPM")-X Profit Split Method ("PSM")XX Transactional Net Margin Method ("TNMM") X - Services Cost Method ("SCM") - X Gross Services Margin Method ("GSMM")-X Unspecified MethodsXX

9. 9 © 2011 Grant Thornton. All rights reserved 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. © 2011 Grant Thornton. All rights reserved Invest in America - SelectUSA Expatriate Tax Issues Aino Askegård Andrésen 28 September 2011

11. © 2011 Grant Thornton. All rights reserved Moving employees from Sweden to the US Tax Social Security Practical issues

12. © 2011 Grant Thornton. All rights reserved Tax – Employees become tax residents both in Sweden and in the US Tax Residency Domicile Connection Tax Residency Presence Work Sweden US

13. © 2011 Grant Thornton. All rights reserved Swedish Tax issues US employment income exempted from taxation in 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. © 2011 Grant Thornton. All rights reserved 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. © 2011 Grant Thornton. All rights reserved 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. © 2011 Grant Thornton. All rights reserved 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. © 2011 Grant Thornton. All rights reserved 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. © 2011 Grant Thornton. All rights reserved 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. © 2011 Grant Thornton. All rights reserved 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. © 2011 Grant Thornton. All rights reserved Practical issues to consider for employer 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

21. © 2011 Grant Thornton. All rights reserved Grant Thornton – where to find us in USA? Boston Chicago Dallas Los Angeles New York San Francisco Seattle Washington, D.C.... and 43 more places

22. © 2011 Grant Thornton. All rights reserved Member of Grant Thornton International International Audit, Tax and Advisory organisation 113 countries 521 offices worldwide 30 000 employees

23. © 2011 Grant Thornton. All rights reserved Grant Thornton Sweden Top 5 position Challenger to "the Big 4" More than 900 employees Approx 130 partners 25 offices

24. © 2011 Grant Thornton. All rights reserved Complete competence Audit and advisory services Accounting services Tax services Corporate Finance Business Consulting

25. © 2011 Grant Thornton. All rights reserved Contact details Aino Askegård Andrésen Sara Gustafsson aino.a.andresen@se.gt.com +46 8 563 072 85 +46 7 613 072 85@se.gt.com sara.gustafsson@se.gt.com +46 8 563 073 22 +46 7 035 073 22.gustafsson@se.gt.com

26. © 2011 Grant Thornton. All rights reserved Thank you for your attention!