Every year a certain large multinational company active in the consumer goods sector and operating in Greece through a local subsidiary provides large sums for the marketing of its products. The marketing expenditure, however, only appears in the Greek subsidiary’s financial data, giving the impression that the Greek market is much bigger than it actually is.
What’s the point of this trick? By showing high expenditure for marketing in the Greek subsidiary’s financial data, the parent company artificially lowers its profits, even posting losses, resulting in lower taxes. At the same time, by displaying high operating costs, it acquires an alibi for marking up products that are sold in Greece. In this way, a detergent that sells for 6.56 euros in Greece costs 5.89 euros in Germany and just 4.37 euros in neighboring Italy. The aforementioned prices are not random but figure in a market research report conducted by Nielsen in 2010.
The above example was detected during a transfer pricing control carried out by the Greek Ministry of Development’s market inspecting department. And there’s more: A Greek subsidiary with low assets -- whose parent company is based in the Netherlands -- appears on the receiving end of loans obtained by the Dutch firm. This is a case of excess funding, where the parent company is lending its Greek subsidiary overly large sums (beyond the local branch’s credit capacity or more than it actually requires). As a result, the company in question has been posting losses for years -- to the point that one might wonder why it doesn’t exit the Greek market altogether -- while the loans are administered by an associate business operating in a low-taxation country (Switzerland).
Here’s another case: A leading supermarket group that also operates in Greece signed an international deal with a multinational operating in the food sector (which again has a subsidiary in Greece), according to which it would be rewarded with a credit note if sales exceeded a certain level. In this case tax evasion was detected on both sides. The Greek supermarket subsidiary did not receive the credit note -- and therefore did not register any revenues -- while the local food company appeared to issue the credit note, in other words, it registered expenses.
Such practices are well known to local multinationals which adopt under-pricing practices.
Fines for irregular transfer pricing are expected in the near future. Meanwhile the ministry’s market inspecting division is currently reviewing a sample of files regarding consumer good companies (supermarkets, suppliers, black and white goods importers), while inspections are being launched in other sectors as well.