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The World Bank’s part in transfer pricing and the developing world

The World Bank, like the OECD and the UN, is working to simplify how transfer pricing works for developing countries. TPWeek speaks to Richard Stern, programme manager for tax simplification at the World Bank Group (WBG).

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Richard Stern has been guiding the tax simplification programme at the World Bank since its inception 18 months ago, demand is increasing among developing countries for the service.

The Global Tax Simplification Team of the Bank’s Investment Climate Department (CIC) aims to:

• Introduce a complete transfer pricing legal framework, with implementing regulations and guidance notes. This includes topics such as compliance requirements, penalties, and availability of advance pricing agreements.

• Implement detection mechanisms (risk-based auditing indicators) to identify possible TP abuse. This is critical to helping tax authorities strategically narrow the field of their enforcement to better manage their scarce administrative resources.

• Promote capacity building and training which is critical to successful implementation and audits, especially given the complexity of this topic. Capacity building on transfer pricing issues also helps deepen the expertise levels of auditors, particularly those working in large taxpayers’ units, on international tax principles as well as on regional issues, which can enhance overall enforcement practices.

The programme is providing transfer pricing assistance in Georgia, Armenia, Bosnia, Serbia, Albania, and Thailand in conjunction with the OECD and EU in partnership. The CIC is working with the local International Finance Corporation offices on these projects, with the exception of Thailand where CIC is working with the Bank’s office.

“Our work is expanding everywhere,” said Stern. “Three new programmes in Latin America, one new programme in the Pacific, potentially three new programmes in sub-Saharan Africa, and at least two new programmes in Eastern Europe.”

The tax simplification programme has only been in progress for 18 months, though other tax reform programmes have been in place since 2005 within the WBG, but it is building its resources, especially the number of experienced professionals it is using.

Donor countries include Switzerland, Austria, the Netherlands and Luxembourg. Italy also supports the programme by providing staff.

“We've raised funds from donor countries, we set up an international tax practice with a lead, who is a transfer pricing expert herself, but she has a growing list of staff, consultants, and government officials who donate time,” said Stern.

The tax practice lead is Komal Mohindra who worked for PwC before taking the position with WBG. She leads the team's tax transparency and international tax work, and provides technical assistance on tax legal issues, tax dispute resolution and transfer pricing.

Stern said that in recent months his team have been working on more complex issues such as advance pricing agreements and safe harbours.

“Low capacity is the biggest issue in the all countries we work in,” said Stern, referring to the level of staff and monetary resources of the countries on CIC’s books.

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