In a world where the chase for international capital has become like a rat-race, multi-national companies seem to be having a field day by playing games with the economies of developing countries through various schemes to avoid the payment of the right taxes. Some see the situation as slapping those in whose mouth you have put your finger and so, African countries, including Ghana, rather look on sheepishly, when all sorts of pain are inflicted on their finances.
Therefore, if we must fight them, we must be resolute. That is why, after the finance minister finished his budget presentation, l laughed not because what he said was funny, but rather, the man touched on an issue that is dear to my heart, Transfer Pricing (TP)-and how we can fight it. I laughed because we have been talking about this issue for the past five years but have not found a way out of it.
It is clear that we know that Transfer Pricing is killing our economy but are we prepared to fight it? The Yoruba of Nigeria say, “One does not dive under water without knowing how to swim,” which means that, never engage in a project for which you lack the requisite skills.
Transfer Pricing has over the past few years, become a buzz word development experts and charity organisations across the world and in developing countries, and according to the Organisation for Economic Co-operation and Development (OECD), the term is simply trade between multinational enterprises “where branches or subsidiaries of the same multinational enterprise exchange goods or services. These transactions within the group are not exposed to the same market forces as transactions between independent enterprises. They are referred to as “controlled transactions”. If the prices of these transactions are artificially lowered or increased they may lead to taxable profits being shifted from one country to another.
To explain it more clearly, the OECD cited an example of a beverage company located, say, in Mexico, which has a subsidiary in France and said, if the French subsidiary pays royalties to the Mexican headquarters for the rights to sell its drinks, taxes are owed in France based on the French subsidiary’s results. The higher the royalties paid by the French subsidiary, the lower the taxable profits in France. The French tax authorities will be satisfied if they see that the royalties paid by the French company to its headquarters in Mexico are not higher than those that would be paid to an independent enterprise for a similar transaction. But if the royalties are too high, there is a possibility that profits are being shifted out of France to reduce tax liabilities there.
This is the way multinationals have fleeced African countries and the Finance Minister Ken Ofori-Atta said, Ghana’s extractive sector is losing about two billion Ghana Cedis annually through Transfer Pricing abuses. For this reason, he said, the government is to take steps to build the capacity of the Transfer Pricing Unit of the national tax agency, Ghana Revenue Authority (GRA), to fight the phenomenon.
This is the reason why l laughed, because five years after we put in place the Legislative Instrument (LI) No. 2188, dated July 27, 2012 to set up the Transfer Pricing Unit at the Ghana Revenue Authority, not much has been achieved because the unit does not have the requisite personnel. The OECD and other international organisations have come to Ghana’s aid to build the capacity of the staff, unfortunately, the Transfer Pricing is not an easy subject to tackle. It needs a lot of expertise and careful investigations to unearth these crimes.
My initial investigations into the matter show that the GRA is competing with international accounting firms for the high calibre personnel who can unearth these crimes. The GRA staff do not earn as much as their counterparts who work with the international accounting companies, and for this reason they are easily poached, they then become the advisers to the multinational enterprises to find loop-holes that would allow them to shift their profits. As a result, fighting the multinationals has become a game that we must be prepared fully to fight and not just pretend to be doing so.
In addition to the expertise that is required, we need people who are highly patriotic to delve into the issue of Transfer Pricing. The complexity of the issue is such that if those who will investigate it are not patriotic enough, the multinationals will always be ahead of us by using various tricks.
Mr. Ofori-Atta claims are supported by research that the Tax Justice Network-Africa has conducted which shows that African countries have really been fleeced through Transfer Pricing. Therefore, it is heartening to note that, the finance minister is calling for rigorous audit of these on these multi-national companies. I can wish him luck in this endeavour. This is because, if we do not try to find out why much was not achieved in the past five years, there is no way that we can move forward audit or no audit.
The global charity, Action Aid has said, “there is significant empirical literature that analyses how transfer pricing abuse negatively affects tax revenue generation and the wider impact on development and poverty alleviation.” No one can deny its effect on Ghana because two Billion Ghana Cedis is no chicken feed. This amount can do lot of things, it can change lives and it can help us reduce local taxes more.
Let it be known that in the process of Transfer Pricing that allows these multi-national companies to fleece us, they take royalty for the brand names that they operate here. For example, a foreign beverage company receives so much money for the brand they sell in Ghana. And it is not like there would ever be an end to this.
It would shock many Ghanaians to know that most of these multinationals companies also take money for management and technical services they claim to render. Sometimes, these payments go into off-shore accounts while others go into accounts of ‘ghost companies” abroad.
We have a case in this country where a multi-national company registered in Ghana and across the West Africa region, also had it’s mother office registered in Ghana. This way, they shifted money into the accounts of the mother office and kept their Ghanaian company with nothing in order not to pay taxes.
Though on paper the companies operations in Ghana did never made any profit because of the way money was shifted into the mother company. These same loss making company was sold to another foreign entity for $700 million.
Therefore, in fighting Transfer Pricing and its related tax avoidance schemes, Mr. Ofori-Atta should know that it is not going to be a child’s play. He must be prepared for a real battle, otherwise, he should just keep silent and allow the status quo to continue.
Kenya and South Africa have made strides in unearthing cases of Transfer Pricing cases and sent these to courts. We have just been blowing hot air and in some cases negotiating with these multi-national companies as if we are scared to let them know the bitter truth – that enough is enough.
This is the reason why l laughed, because five years after we put in place the Legislative Instrument (LI) No. 2188, dated July 27, 2012 to set up the Transfer Pricing Unit at the Ghana Revenue Authority, not much has been achieved because the unit does not have the requisite personnel.
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