Financing some sectors increases the risk of supporting tax avoidance
Financing the agribusiness sector means also financing commodity traders, who by the nature of their business are multiple entities carrying out various supply chain roles across multiple jurisdictions around the world. Commodity sourcing takes place where the crops grow, financing and trading where the commodity finance market is developed and sales where the consumer market is.
These business structures could potentially be (mis)used for profit-shifting to reduce taxes. We see countries with enabling environments for traders like Switzerland, Singapore and more recently United Arab Emirates actively trying to attract commodity traders.
Identifying and assessing unbalanced profit-shifting practices is a challenge, not least because many countries have their own specific rules for commodity export prices and intercompany trading.
Support with conditions
FMO insists every client explains the different functions of each of their onshore and offshore entities and provide us with transfer-pricing documentation covering all inter-company transactions. If applicable, clients are required to do country by country reporting in accordance with EU law.
If a client does not have transfer-pricing documentation in place, we feel it is part of FMO’s added-value to support the project under the condition that the client works with a reputable advisor to create the appropriate transfer-pricing documentation, which also provides more transparency for tax authorities.
FMO closely follows international taxation developments, and we will continue to raise client awareness of the importance of responsible and transparent tax practices.