Compensating adjustments - An international perspective

Abstract: The purpose of this essay is to investigate if there exist any differences in the handling of compensating adjustments between Sweden and the UK and why these differences exist together with what consequences it may bring. Differences were identified, such as the fact that the UK only allows for compensating adjustments in an upward direction whilst Sweden accepts adjustments in both directions. The reason for the differences originated from a discrepancy in the interpretation of the OECD documents, such as the guidelines and the commentary, and how the ALP was interpreted, restrictive or extensive. Sweden interpreted the principle in accordance with its purpose and the UK argued for a prohibition of downwards adjustments due to the fact that independent enterprises always price ex-ante. The consequences of the identified differences were considered to counteract the purpose of double taxation treaties in general. Further, the risk of economic double taxation was concluded to increase as a consequence of the described differences and is from an international perspective undesirable. It exist arguments, taking a state perspective, that motivates an interpretation similar the one taken by the UK but at the expense of the international endeavour to eliminate economic double taxation.