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Volvo suffers further tax blow

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12:57 CET+01:00
Volvo Cars risks having to pay a total of 1.4 billion kronor in back taxes following further charges of wrongdoing from the Swedish Tax Board. Volvo and parent company Ford have received a rap on the knuckles for their irregular international tax planning structures, Göteborgs-Posten reports.

The background to the latest tax bill is an audit last year in which Volvo and Ford were found to have stifled profits in an unacceptable manner and ordered to pay 4.6 billion kronor in back taxes.

When Ford bought Volvo Cars in 1999 it also founded Ford VHC as as a Swedish parent company. The purchase was financed with a loan that Ford VHC received from Ford in the USA.

The aim of this set-up was to enable a deduction in Sweden for interest paid on the loan. In the audit it emerged that the interest rate paid on the loan had gone up despite the fact that Volvo Cars had signed a 30-year fixed interest loan agreement.

According to the Swedish tax authorities, raising the interest rate constituted a breach of international principles surrounding business dealings within multinational corporations. Subsidiary companies are to be treated as independent, while internal agreements and pricing are subject to market norms.

Thursday's revelations follow the news on Wednesday that the National Tax Board of Sweden was calling for Volvo Cars to pay 780 million kronor in unpaid taxes, having sold its products to distributors in four export markets at an unacceptable discount price.

The total tax bill for the separate findings amounts to 1.4 billion kronor.

After a year-long investigation the tax board concluded that Volvo's pricing was unproblematic in all countries bar four: Finland, Thailand, Taiwan and Singapore.

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According to the tax authorities, the methods used by the company run counter to international agreements on internal pricing.

Volvo made large gains from its pricing policy in these four countries, according to tax board accountant Per Johan Åseskog.

"While they have paid taxes in these countries, on the whole they have made money by paying less on customs and other charges," Åseskog told Sveriges Radio.

In addition to the 780 million kronor owed for the years 2004 and 2005, the company has to pay an extra charge of 50 million kronor.

Åseskog was not able to estimate the extent to which other car manufacturers had used the same method to keep prices down in these four countries.

"We have no insight into that," he said.

It is not yet known whether Volvo Cars will appeal the tax board's decision

"It's not decided yet. We have to discuss it with our owners first," spokeswoman Katarina Paulsson told news agency TT.

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