Logan Wort, executive secretary of the African Tax Administration Forum (ATAF) made the comments at a meeting attended by African governments at the forum’s office in Pretoria, in South Africa last week.
Senior officials from South Africa, Mozambique, Ghana, Tanzania and Zambia met with ATAF to discuss further an ActionAid report that exposed aggressive, and potentially actionable, transfer pricing from SABMiller, a drinks company, in the five countries.
Wort recommended African tax authorities send their staff on secondments to developing countries so they can get involved in transfer pricing cases and gain more experience.
The five countries agreed they would share information on multinational operations for tax purposes.
The comments echo the sentiments of many tax policy advisers and highlight a problem that needs to be resolved, if developing countries are to make any progress with economic expansion.
A meeting of multilateral organisations and international tax practitioners in Sweden in June spoke at length about the need for capacity building, especially in developing countries, with Krister Andersson, the head of the tax policy department at Business Europe, saying business is happy to help out.
“There are very senior [tax] people, that are retired, that have suggested they could be of assistance, travelling to these countries and sitting down with authorities to discuss what’s important for them and for business. A lot could be gained from this. I’m all in favour and we [business] will be very eager to help,” said Andersson.
Training to help enforcement
With increasing investment in developing countries, the need for stricter transfer pricing enforcement is growing among governments.
“Capacity building is certainly the hottest topic at the moment and a worldwide issue for tax authorities, advisors and corporates,” said Jens Brodbeck of Edward Nathan Sonnenbergs in South Africa.
Brodbeck spoke about the scarcity of expertise and a need for training to overcome the problem.
“SARS has been investing heavily in their human resources in transfer pricing and they now have quite a formidable team which receives ongoing training and support from the OECD and other tax authorities,” Brodbeck said. “The same happens more and more in other developing countries, and everyone is trying to get the best people, which are generally scarce, especially in South Africa.”
“As there are not enough transfer pricing experts in South Africa, and in most other developing countries, tax authorities would be well advised to focus on training and international cooperation or secondments to make sure they attract, and are able to keep, the best talent,” Brodbeck added.
Capacity building is not just about headcount.
“It's about having the appropriate level of skills and expertise to cover the main revenue risk areas. It's also about meaningfully engaging businesses and transfer pricing advisors and ensuring that systems are transparent and well communicated,” said Batanayi Katongera, a transfer pricing adviser for Olswang in the UK, who also heads up the firm’s Africa Business Unit.
Katongera said quality-driven capacity building will mean having a clear consultative agenda that result in greater capacity for all stake-holders in three key steps. These should mean:
Setting clear policy objectives that are realistic and achievable. Measures should not be punitive or alter the overall targets for tax neutrality that are important if African countries are to have competitive tax systems;
Consulting and communicating widely. Save time and pain by taking on board lessons from elsewhere. International organisations such as the OECD run effective transfer pricing policy change programmes. There are transfer pricing success stories in Africa already: Look to Egypt, South Africa and Zambia for how they are going about increasing capacity. Also, take advantage of the regional groupings to build common agendas like the EU Joint Transfer Pricing Forum has done; and
Getting the right mix of processes and resources in place steadily. This may mean investing in some of the top talents that are in the private sector. But it will first mean that a proper joined-up system is in existence, from documentation to enquiry, to adjustments/ penalties, appeals to dispute resolution and advance arrangements. The transfer pricing process should be joined up and capacity should be appropriately and systematically built up. For example, there is little merit in increasing tax inspector numbers if this will simply lead to a greater number of disputes when the judicial process does not have capacity to deal with such appeals.
Andersson said a need for capacity building was not just one of developing countries and, as a member of the supervisory board of the Swedish tax authority he urges the director general in Sweden to invest in more training and increased salaries for key personnel.
“It’s in everyone’s interest - business and revenue,” said Andersson. “We [business] want to meet competent, well trained and well educated people on the other side of the table. That goes for developed and developing countries. It increases certainty and predictability and speeds up the discussions.”
In the UK, the Varney Report, about the relationship between the tax authorities and large businesses, led to sweeping changes in the way HMRC approaches tax disputes.
“That was over 10 years ago now, but HMRC haven't stopped there,” said Katongera. “They have continued to consult and encourage better and more transparent relationships with tax payers.”
“My point is, one review is never enough, capacity building and investment in better systems and processes is an on-going task that all countries should be fully engaged in, whether they are developed or developing,” added Katongera. “Of course this means that the change agenda is even more pressing for developing countries if they are to not only catch up with developed systems, but indeed start leading the way in transfer pricing matters.”
HMRC works on capacity building initiatives in developing countries, particularly in Africa.
"For example, we have a partnership with the Ethiopian Revenue and Customs Authority (ERCA), under which managerial and technical assistance is provided to support ERCA’s modernisation programme. In the field of transfer pricing," a spokesman said. "HMRC has provided training for members of the African Tax Administration Forum (ATAF) and is leading an Organisation for Economic Cooperation and Development (OECD) outreach project on transfer pricing audits."
