Companies accused of cheating tax system

International companies in Sweden avoid tax by setting false transfer prices, a controversial former pharmaceuticals executive has said.

Transfer pricing is used to transfer goods between different divisions within a company, particularly between divisions in different countries. According to Peter Rost, former marketing director at pharmaceutical companies Pharmacia and Pfizer, this practice is used to move profits from Sweden to countries with lower taxes.

The OECD’s guidelines state that parent companies and subsidiaries must have separate profits.

“What they do is continually keep an eye on sales in Sweden, for example, and then ensure that they set transfer prices at just the right level for there to be no profit or nearly no profit in Sweden,” said Peter Rost to Sveriges Radio.

Sweden has recently tightened the law in this area, meaning that companies have to demonstrate to the tax authority how they have calculated prices. But Jan Mattsson, head of the tax authority’s foreign section, said it would remain difficult to prove that companies have adapted prices to move profits abroad.

Peter Rost was fired by Pfizer in 2005. He then sued the company for having sacked him for blowing the whistle on illegal business practices in the company’s Pharmacia subsidiary.