The other countries surveyed relied on tax-avoidance legislation to counter the customs-duty avoidance that sometimes accompanied transfer pricing.
The study was compiled over the past several months to identify the transfer-pricing rules, practices and approaches adopted by various countries in Africa, said Sean Kruger, international tax partner and national director of transfer pricing services at Ernst & Young.
Countries sampled included Angola, Uganda, Zimbabwe, Tanzania, Malawi and Mauritius.
Transfer pricing is the adjustment of prices on sales of material between members of a multi-company group, in order to distribute financial burdens between member companies in terms of central financial policy. It is found most commonly in multinationals, where transfer pricing is suspected to be a method of evading national taxation and customs duties.
Kruger said that, in the absence of transfer-pricing legislation, African countries tended to use general anti-avoidance laws.
“They also placed reliance on the Organisation for Economic Co- Operation and Development guidelines for interpreting inter-company transactions,” he said.
Kruger said the South African Revenue Service’s transfer-pricing unit was “sophisticated” in that it had substantially expanded on its knowledge and resources.
He said transfer-pricing legislation was relatively new in SA. The law was introduced in 1995 as a result of the relaxation of exchange- control regulations. The laws affected South African taxpayers with offshore operations, such as foreign subsidiaries and foreign holding companies.
Transfer-pricing issues had been handled by the Randburg office that was established two years ago. The corporate tax centre had exceeded its own revenue target of R5, 5 billion by almost R1 billion.
In countries such as Namibia and Lesotho, transfer pricing was still a new area. Because of the non-existence of legislation dealing specifically with transfer pricing, different countries focused their attention on divergent aspects of inter-company transactions.
For instance, in Botswana, the revenue authorities focused on specific transactions such as management fees, while the Zimbabwean authorities had a particular sensitivity with regard to sales.
“Many tax authorities relied on gut-feel to ascertain whether the inter-company transactions were above board. However, in most cases, challenges from authorities were carried out in a haphazard and aggressive manner.”
Kruger said he believed that some of these countries would eventually catch up and introduce appropriate measures, as was currently happening in Namibia.
(Business Day)
