As my vivid followers will know, I promised I would provide some insight into the Transfer Pricing Summit 2016 hosted by the South African Institute of Tax Professionals (known as SAIT). Instead of giving minutes of each session I thought I give a list of the juiciest comments/moments. Obviously if you would like to elaborate on any of them, let me know via the comment section below.
- Just documentation is not enough anymore in transfer pricing, [we] must get to the substance
- Knowledge is key and in the digital age it is easy to get – for both taxpayers and tax administrations
- Are leading MNEs paying their fair share of tax? If not, our tax systems are not working as most [tax] should come from these MNEs
- Days of pleading ignorance are over (example of the Australian Parliament), you have to know what is happening in your business
- Most African countries follow OECD, but is there enough skills? Maybe not yet, but we have auditors with no borders and funding is pledged by certain organisations like the World Bank to assist with skills development
- Assumption is that illicit funds only flow out of developing countries to developed countries, this does not seem to be the case
- Is there a difference between evasion or avoidance in relation to transfer pricing. It is uncommon that MNEs try to miss-price (i.e. be fraudulent) but rather, transfer pricing is not an exact science. There may be some bad apples but that is not the norm
- Some countries apply transfer pricing to any cross border transaction, the reason for this is that countries are not always able to proof a relationship (connected person) and this way the tax authorities can put the onus onto the taxpayer to provide support that a transaction is with third parties or related parties
- Most countries in Africa not yet doing a lot of work around IP, trying to focus on other transactions first, such as services.
- ATAF has released a toolkit that the Nigerian tax authority is using. The feedback from FIRS has been that this is a game changer and ATAF will release this tool for other tax authorities to use towards the end of 2016
- Question remains, how to deal with comparability studies. Usually, no local comparables are available and how can tax authorities/taxpayers get around that. Introduce a safe harbour? Maybe use less comparable companies or do geographical adjustments. A question was raised, why don’t tax authorities provide a number that should be used as an adjustment for geographical differences and taxpayers can use European comparables.
- Africa may be looking into APAs but generally speaking, the focus is on audits as tax authorities do not have enough transfer pricing specialists/skills
- Information should be readily available, but that is not really the case. Companies within a MNE are using different accounting systems and so forth. Difficult to just get the information. MNEs should try do a dry run to make sure there are no snags
- Making CBCr reports public has added pressures and may result in reputational risks
- NGOs can make more damage to a business than a tax authority can
- Should a tax authority use a CBCr in bad faith, there is a way to stop submitting the report by a MNE, but it is unlikely that it will happen. The CBCr process is based on trust
- MNEs need to consider the risk of ‘low valuable’ IP which a tax authority deems to be of high value
Day two will follow shortly…