|
|
|
|
| |
IN A bid to improve compliance and collection of tax in Africa, the African Tax Administration Forum is expected to consider a draft agreement on the exchange of information at the forum’s council in February.
Logan Wort, executive secretary of the forum, said yesterday that the forum’s focus in the past year had been on improving the abilities of tax administrations to increase tax revenue through effective tax collection rather than by raising tax rates.
A method of mobilising resources better is to exchange information on the tax habits of multinational companies and their transfer pricing policies. The forum is still developing guidelines for transfer pricing rules for African countries.
Transfer pricing refers to the way in which multinational companies price cross-border loans, royalty payments and management fees within the same group. The arm’s length principle should be used to determine prices — what would the charge have been if the transaction had been between unrelated parties.
Billy Joubert, a tax partner at Deloitte, would like to see sharing of information broadened to technical tax information and policy information sharing, such as policies on withholding taxes.
He believes African economies are losing out on their fair share of the tax cake. Tax administrations in Africa are imposing a withholding tax not only on dividends, interest and royalties, but also on management and technical fees.
The forum should encourage its 34 members to drop withholding taxes on management fees, he says. "It becomes more feasible once you are able to enforce transfer pricing rules, but African administrations cannot have it both ways." If they do they lose out on tax revenue because of inability to enforce rules and become investor unfriendly because of unclear withholding policies.
Mr Wort said up to 60% of the total loss of income to Africa was as a result of transfer pricing arrangements and transactions between multinational companies and their African subsidiaries.
Many European multinationals are under pressure to repatriate pretax profits, Mr Joubert says. "Transfer pricing in poor times becomes more important. They (African tax administrations) need to get on with it. The formulation of guidelines is an absolute priority." |
| |
|