OECD and tax forum sign memo on transfer prices

The memorandum was signed last week after a meeting of the Global Forum on Transparency and Exchange of Information in Cape Town.

The signing also followed a four-day Africa transfer-pricing summit in Johannesburg, organised by the Institute for International Research and the South African Institute of Tax Practitioners.

The OECD and the African forum are already working closely on transfer pricing, with the OECD playing a leading role in the establishment of transfer pricing regulations and guidelines.

Many African countries rely on OECD principles when drafting their transfer pricing legislation.

Transfer pricing refers to how 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. Transfer pricing adjustments are seen as an important source of revenue for developing countries.

Michael Fortmann, an associate director at KPMG, said many tax administrations in Africa are starting to implement transfer pricing legislation, allowing them to raise additional assessments to adjust a company's tax liability if they believe transactions are not concluded according to arm's length principles.

Almost every country had a different set of rules. There was also no harmonisation in Africa as to when the transfer pricing documentation had to be prepared for tax purposes.

Some tax administrations expect companies to update their documentation after concluding a transaction, or when the company is filing its annual income tax return.

"Others impose no legal obligation on companies to have transfer policy documentation, but may demand documentation during an audit," Fortmann said.

KPMG advised its clients to get their documentation ready before the year-end. Adjustments, if necessary, could be put through the accounts before the company submitted its tax return, thus avoiding additional assessments.

Source: Business Day via I-NET Bridge