The notion of economic value in taxation - A comparison of valuation methods

Sammanfattning: The concept of economic value is not well explored nor consistently applied in the field of taxation. Different systems of taxation assess value from their own perspectives and with their own interests in mind resulting in situations where different values for taxation are determined for the same transaction. Efforts have been made to harmonise valuations between customs and transfer pricing. This has however met resistance by the Court of Justice of the European Union through their judgment in the recent Hamamatsu case. Using a comparative, functional method this thesis examines the valuation methodologies of customs, transfer pricing and VAT. Focus is on the degree and method of harmonisation within the systems and how their underlying principles of value guide valuations of cross-border transactions between related parties. The Hamamatsu judgment serves as a basis for discussion on the practical implications of their divergent purposes and methodology. Notable differences exist in the level of harmonisation between the areas. While customs matters are extensively harmonised, direct taxation is almost exclusively governed by the Member States. As for value added tax the principle of neutrality necessitates harmonisation of the taxable amount although this is subject to derogations for the purpose of combatting tax evasion. Where customs and value added tax to a large extent rely on the positive value as decided by the parties, the object of transfer pricing is establishing conformance to a notional value. Differences exist also as regards from which perspective value is determined as customs focus on the value of a good on the Union market while transfer pricing seeks to establish appropriate divison of the use value of the good. Division is apparent also from a temporal perspective. Where customs valuation is determined at the time of importation, transfer pricing valuations may be retroactively adjusted based on subsequent profit margins. The effect on value added tax in this regard is uncertain and has been subject to debate. The opportunities for legislative harmonisation of valuation methods appear slim though increased cooperation in data collection does seem feasible. Improved horisontal harmonisation of customs and value added tax valuations would also bring benefits to international traders.