Developing countries have more to lose than anyone else when it comes to transfer pricing abuse. Nishana Gosai, transfer pricing manager at the South African Revenue Service’s (SARS) Large Business Centre, spoke strongly in favour of CBCR reporting to help tackle the problem.
“We strongly support CBCR,” said Gosai. “It would help with a lot of the challenges developing countries face.”
Peter Steeds, deputy director and head of transfer pricing at HM Revenue & Customs, noted that there has been “a lot of noise” around CBCR from non-governmental organisations.
“It’s seen as part of the armoury for developing countries to protect their tax bases from the evils of transfer pricing abuse,” said Steeds. “It would go some way towards this, but there are lots of pitfalls in trying to get an accurate picture with tax breaks.”
Gosai admitted that CBCR will not take away all the problems SARS faces in trying to collect its fair share of tax revenue.
“But one of the biggest issues is the lack of access to information,” she said. “CBCR is a good basis to get reliable information.”
Michelle Levac, transfer pricing specialist at the Canada Revenue Authority and chair of OECD Working Party No 6, said that CBCR is part of a much larger risk assessment process. The OECD’s Global Forum on Transfer Pricing is working with developing countries to look at the best practices for risk assessment.
Eric Lesprit, head of the APA team at the French Tax Administration noted that CBCR is seen as a good way to fight tax havens.
“We think it could be useful,” he said. “It can help our audit operations. We need more information gathering. Why not? It could be interesting. We’re waiting for what comes from the OECD.”
Formulary apportionment and information exchange
All four authorities, however, widely condemned formulary apportionment, which, alongside CBCR, is another part of the armoury for development activists trying to prevent transfer pricing abuse.
But the authorities agreed that not enough information is being exchanged in practice, despite the explosion of tax information exchange agreements (TIEAs) in recent years.
“Tax authorities don’t exchange information nearly enough,” said Steeds. “The UK is at fault as much as anyone else.”
“There’s not enough information exchange,” agreed Gosai. “We want to promote it. Developing countries should be sharing information relevant to other developing countries even if it’s not relevant to them.”
Transparency
The authorities were asked the most common mistakes taxpayers made when managing their relationship with them and the answer was unanimous and resounding: lack of transparency.
“If information is hidden, if there’s no trust during an audit or advanced pricing agreement, it’s difficult to work,” said Lesprit. “It’s a big first mistake to avoid.”
Levac, Steeds and Gosai all agreed that was the number one mistake taxpayers in their countries could make as well.
“Also, the tax business should see that behind the tax administration there are people,” said Gosai. “Don’t underestimate these people.”
Moderator Len Terr of Baker & McKenzie summed up the authorities view on trust and transparency: “Don’t think we’re idiots”.
