EXPERTS say businesses can demonstrate their commitment to ethical business practices and reduce the risk of facing tax audits by investing in robust transfer pricing documentation.
Transfer pricing refers to the pricing of goods, services and intangible assets transferred between related entities within a multinational company.
It is an important issue for tax authorities as it can be used to shift profits from high-tax jurisdictions to low-tax jurisdictions, thereby reducing the overall tax liability of the multinational company.
This is premium content. Subscribe to read article.
“Transfer pricing documents are traditionally a problem because there is a requirement for every company to come up with a transfer pricing document whenever there are inter-company transactions, but key amongst some of the challenges is the issue of how to benchmark such transactions, even the filing of the requirements and the preparation of the document itself, which is topical amongst tax players.
“There is not so much development that has happened for countries within southern Africa in terms of that space because transfer pricing legislation was recently introduced by Zimbabwe in 2016; and similarly, countries like Zambia and even Botswana recently introduced transfer pricing. So, there is still confusion around what sort of information is to be included in the transfer pricing document,” he said.
Tapera said other issues include ways to determine what sort of prices or transfer pricing need to be used for a particular transaction.
“There are some risks we find with many taxpayers and so the whole reason why we hosted this is to make sure that there is an exchange of information, capacity building and also to tell most of our taxpayers the expectations of revenue authorities, by and large, most of the revenue authorities of the country,” he said.
Hope Vengesa, manager of transfer pricing at BDO Zambia, said transfer pricing was a global issue.
“It affects and involves all aspects of international trade. We have a lot of multinationals, and we have a lot of growth and expansion as a global community, so you can see how much it impacts economies and just regular and global trade.
“So, it’s an essential part of the economy and an essential part of global trade. Global trade will not be possible without transfer pricing because we need these multinationals to trade among them.
“These are principles that have been part and parcel of the tax system as a whole. Just now, with the changes and shifts that have been happening, transfer pricing has now been brought more to the forefront, and it’s really affecting businesses and how they are run. People are being made to stop, listen, and think about it before they enter into related party transactions,” he said.
“The core of the issue and heart of the matter is always going to be the fact that we have different taxes from different jurisdictions; it will always create that opportunity for shifting of profits and actually, now the need to have more stringent rules, more stringent documentation and to have all countries on board is slowly moving towards the situation where that will be very difficult to do,” he added.
John Nawa, audit manager at the Zambia Revenue Authority, said there was a need for uniformity of principles.
“There should be a documentation requirement because, in all jurisdictions, it doesn’t matter what the actual documentation is supposed to look like or whether it is supposed not to be filed,” he said.
“It should be a common idea; it should be normal that in every jurisdiction, transfer pricing is taken into consideration because, as long as the principles are followed, you will not have these situations of tax erosion and profit shifting.”
International tax advisor Terry Muli said transactions between related parties were impacting a lot of African businesses and economies.
“So, what we have seen over the years is that there are a lot of multinational companies setting up companies in sub-Saharan Africa and Africa as well, but to focus more on this region than any other,” she said.
“A lot of the entities you see dealing in some of the key sectors are actually held by global holding companies that have made an investment and acquired some sort of wholly owned subsidiary or partly owned subsidiary, but some entity that is in one way managed by a foreign company and that is what has led to the need to quickly adapt to infrequencies around the pricing of transactions.”
newsdesk@fingaz.coSubscribe to The Financial Gazette