Transfer PricingTransfer pricing is a fundamental concept in international taxation that defines the pricing methods and rules applied to transactions between related entities within a multinational enterprise (MNE). In the context of tax regulations, it governs how prices for goods, services, or intangibles (such as intellectual property) are set when these items are exchanged between different branches, subsidiaries, or affiliates of... Toolkit to Give African Tax Authorities Clout
• Interventions have brought in over $120m tax revenueTax Revenue is the income collected by governments through various taxes imposed on individuals, corporations, and transactions. It is a primary source of funding for public expenditures, including infrastructure, healthcare, education, and social services. Tax revenue can come from different types of taxes, such as income tax, corporate tax, value-added tax (VAT), excise duties, and customs tariffs. The level and... in two years
• Toolkit empowers authorities to assess transfer pricingTransfer pricing is a fundamental concept in international taxation that defines the pricing methods and rules applied to transactions between related entities within a multinational enterprise (MNE). In the context of tax regulations, it governs how prices for goods, services, or intangibles (such as intellectual property) are set when these items are exchanged between different branches, subsidiaries, or affiliates of... risks
The African Tax AdministrationTax authorities are fundamental institutions within government frameworks, overseeing tax assessment, collection, and administration. Their operations ensure that tax laws are enforced and public funds are collected efficiently. This article delves into tax authorities' purpose, responsibilities, and structure, offering insights into their essential role in supporting government functions and economic stability. What is a Tax Authority? A tax authority is... Forum has published a toolkit (https://www.ataftax.org/en/products-services/technical-assistance/transfer-pricing-tp) for transfer pricingTransfer pricing is a fundamental concept in international taxation that defines the pricing methods and rules applied to transactions between related entities within a multinational enterprise (MNE). In the context of tax regulations, it governs how prices for goods, services, or intangibles (such as intellectual property) are set when these items are exchanged between different branches, subsidiaries, or affiliates of... and risk assessment in the African mining sector, with the help of Germany’s Federal Ministry for Economic Cooperation and Development.
The toolkit focuses on transfer pricingTransfer pricing is a fundamental concept in international taxation that defines the pricing methods and rules applied to transactions between related entities within a multinational enterprise (MNE). In the context of tax regulations, it governs how prices for goods, services, or intangibles (such as intellectual property) are set when these items are exchanged between different branches, subsidiaries, or affiliates of... issues that present a high risk to revenue, according to the forum. “A loss of even 1 percent of the value of these transactions is likely to be significant for developing country revenues”, ATAF stated.
ATAF cites the United Nations Economic Commission for Africa, saying Africa is losing approximately $50 billion a year in illicit financial flows, adding that “transfer mispricing is one of the primary sources of these losses” with the problem is particularly acute for resource-rich developing countries.
Multinationals involved in transfer pricingTransfer pricing is a fundamental concept in international taxation that defines the pricing methods and rules applied to transactions between related entities within a multinational enterprise (MNE). In the context of tax regulations, it governs how prices for goods, services, or intangibles (such as intellectual property) are set when these items are exchanged between different branches, subsidiaries, or affiliates of... disputes include BHP Billiton Ltd., which is involved in an A$1 billion ($784 million) transfer pricingTransfer pricing is a fundamental concept in international taxation that defines the pricing methods and rules applied to transactions between related entities within a multinational enterprise (MNE). In the context of tax regulations, it governs how prices for goods, services, or intangibles (such as intellectual property) are set when these items are exchanged between different branches, subsidiaries, or affiliates of... dispute with the Australian Tax Office in connection with commodity payments to its Singapore marketing business, and South African miner Kumba, which announced Feb. 3 a 2.5 billion rand ($185 million) settlement with the South African Revenue ServiceThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently....
Technical assistance programs on transfer pricingTransfer pricing is a fundamental concept in international taxation that defines the pricing methods and rules applied to transactions between related entities within a multinational enterprise (MNE). In the context of tax regulations, it governs how prices for goods, services, or intangibles (such as intellectual property) are set when these items are exchanged between different branches, subsidiaries, or affiliates of... implemented in various African countries over the past two years have resulted in the collection of more than $120 million in additional revenue collectively, according to Lee Corrick, technical adviser on international taxationFOR MORE INSIGHT ON INTERNATIONAL TAXATION, PLEASE READ THIS ARTICLE: Introduction to International Taxation: Key Concepts & Guidelines International Taxation encompasses the framework of laws, principles, and treaties that govern the tax obligations of individuals and entities engaged in economic activities that span multiple jurisdictions. This field addresses how income, profits, and gains are taxed when operations or investments extend... at ATAF.
The organization’s toolkit is one of a series of interventions aimed at strengthening tax authorities’ capacity to determine whether they should audit particular high-risk related party transactions.
Four-Phase Risk Assessment
The risk assessment aspect of the toolkit is made up of of a four-phase transfer pricingTransfer pricing is a fundamental concept in international taxation that defines the pricing methods and rules applied to transactions between related entities within a multinational enterprise (MNE). In the context of tax regulations, it governs how prices for goods, services, or intangibles (such as intellectual property) are set when these items are exchanged between different branches, subsidiaries, or affiliates of... compliance process, which includes case selection, risk assessment, audit and dispute resolution.
“In Africa, there are some key issues,” Corrick said. “One is quite weak legislation, the second is limited resources to address transfer pricingTransfer pricing is a fundamental concept in international taxation that defines the pricing methods and rules applied to transactions between related entities within a multinational enterprise (MNE). In the context of tax regulations, it governs how prices for goods, services, or intangibles (such as intellectual property) are set when these items are exchanged between different branches, subsidiaries, or affiliates of... issues.”
He noted that a transfer pricingTransfer pricing is a fundamental concept in international taxation that defines the pricing methods and rules applied to transactions between related entities within a multinational enterprise (MNE). In the context of tax regulations, it governs how prices for goods, services, or intangibles (such as intellectual property) are set when these items are exchanged between different branches, subsidiaries, or affiliates of... investigation “is a resources-intensive exercise—the average time to complete a transfer pricingTransfer pricing is a fundamental concept in international taxation that defines the pricing methods and rules applied to transactions between related entities within a multinational enterprise (MNE). In the context of tax regulations, it governs how prices for goods, services, or intangibles (such as intellectual property) are set when these items are exchanged between different branches, subsidiaries, or affiliates of... audit is sitting at 18 months.”
ATAF developed three ways to assist tax authorities. The first, says Corrick, was an approach to drafting legislation designed around the framework of arms-length principle but adapted with specific provisions which simplify some of the difficult challenges.
It also developed a general transfer pricingTransfer pricing is a fundamental concept in international taxation that defines the pricing methods and rules applied to transactions between related entities within a multinational enterprise (MNE). In the context of tax regulations, it governs how prices for goods, services, or intangibles (such as intellectual property) are set when these items are exchanged between different branches, subsidiaries, or affiliates of... risk assessment tool to assist African tax administrations to identify the highest risk companies.
Finally, the toolkit was aimed at helping countries deal with risk assessment.
Toolkit’s Focus
The toolkit outlines four big issues for tax authorities:
• Marketing arrangements, where, for example, a related company buys mineral products from a mine and consideration of whether the related company performs value-adding functions and assumes entrepreneurial risk or is a hub that merely provides a support function.
• Intercompany debt, where a subsidiary receives debt from a parent or an affiliate company, often a corporate treasury located in a low-tax jurisdiction, to finance geological exploration or mine development. Corrick says these arrangements enable some companies to slash profits through interest payments.
• Procurement services, where companies buy from or on behalf of subsidiaries at inflated prices.
• Management services, where fees are paid to a related party.
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