Building an effective transfer pricing regime in Swaziland
ATAF and UN workshop to build transfer pricing capacity with the Swaziland Revenue Authority
The African Tax Administration Forum (ATAF), in partnership with the United Nations, is delivering a transfer pricing skills building workshop to tax officials in Swaziland from 4–8 December 2017.
Transfer pricing is reported by African countries as one of the major profit shifting strategies used by multinational enterprises (MNE) to avoid paying tax. The focus of this training in Ezulwini is on key transfer pricing issues faced by Swaziland and other African countries including identifying high risk transactions through effective risk assessment processes and issues relating to the pricing of intra-group services, intangibles and cost contribution arrangements.
When members of a multinational group of companies undertake transactions with each other (e.g. purchases or transfer of goods or services), one member of the MNE charges a price to another member of the MNE which is called the “transfer price”. This is reflected in the accounts of both companies and forms the basis for the computation of their accounting and taxable profits. The transfer prices used by the MNE influence the amount of profits that they report in each tax jurisdiction in which they operate.
Transfer pricing, is a necessary aspect of the operations of any multinational enterprise (MNE) and is not illegal or necessarily abusive. However, if the method used to determine the price of such transactions does not reflect their true value, profits might effectively be shifted from normal tax rate jurisdictions to low-tax or no-tax jurisdictions. This unfairly deprives African countries of significant amounts of tax revenue, reducing the amount of resources available for funding its development objectives. Apart from tax base erosion, it can also lead to double taxation, which might undermine the investment climate, which is a critical factor for the promotion of foreign direct investment.
Building a more effective tax regime to address transfer pricing risk can have a significant impact on a country’s tax revenue. For example, according to a recent study when South Africa revised its transfer pricing rules with effect from 1 April 2012, firms which were affected by the new rules shifted approximately R1.6 billion or USD168 million less out of South Africa in 2013 than in 2012. If all of this shifted profit was taxed in South Africa SARS would have collected an additional 29 billion Rand or USD3.04 billion tax revenues. This is equivalent to an increase of 3.2% of the total tax revenues in South Africa for the year 2013.
In response to these challenges ATAF has been providing transfer pricing technical assistance programmes to many African countries which is assisting them in revising their legislation and building their audit skills. The assistance is already having an impact with countries reporting additional tax of over US$200 million in the past two years. The UN Committee of Experts on International Cooperation in Tax Matters (Committee of Experts) is also providing assistance to developing countries including the updating in 2017 of the UN Practical Manual on Transfer Pricing for Developing Countries (the UN TP Manual) to take into account recent transfer pricing developments.
The ATAF/UN partnership combines the on-the-ground practical experience the ATAF experts have from the ATAF transfer pricing technical assistance programmes with the global overview the UN has from its work with developing countries. This enables the partnership to deliver joint workshops to help African tax administrations identify and address high risk transfer pricing issues.
The workshop in Swaziland will be the third collaborative engagement between the UN and ATAF on building capacity on transfer pricing in Africa. The aim of the Workshop is to provide participants with insights on effective transfer pricing risk assessment and technical training on complex transfer pricing issues relating to intra-group services, intangibles and cost-contribution arrangements.
The Workshop will also provide practical guidance on how to build transfer pricing capacity in African countries, and provide a presentation of the Toolkit for Addressing Difficulties in Accessing Comparables Data for Transfer Pricing Analyses developed by the Platform for Collaboration on Tax The workshops makes extensive use of case studies to enable participants to gain confidence in applying the skills acquired to address transfer pricing issues.
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