Shivambu suggests raft of aggressive steps to deal with transfer pricing abuse
May, 01st 2015
COMPANIES that engaged in tax avoidance practices such as the abuse of transfer pricing should be expropriated without compensation, Economic Freedom Fighters (EFF) MP Floyd Shivambu proposed in Parliament on Wednesday.
This was one of a raft of "aggressive" measures that he believed the government should adopt to deal with tax avoidance, which he described as "pure, pure theft" of the country’s resources.
Other measures the EFF politician proposed to deal with tax avoidance included withdrawing operating licences, as well as fines and financial penalties for transgressions.
SA needed a dedicated anti-avoidance act, Mr Shivambu said in a submission to Parliament’s trade and industry committee, which has been holding public hearings on transfer pricing.
All presenters have agreed that the abuse of transfer pricing to shift profits from high to low tax jurisdictions eroded the South African tax base and meant there was less money available for socioeconomic development, as well as for investment and wage increases.
There has also been broad consensus on the need for more capacity at the South African Revenue Service (SARS) to investigate transfer pricing transactions.
South African Mining Development Association president Bridgette Radebe highlighted the way in which the shifting of profits abroad through the abuse of transfer pricing deprived black economic empowerment partners of their rightful share of the profits and dividends of a company and undermined their ability to repay the loans they had raised to purchase their shares.
Lower profits also meant that mining companies had less ability to implement the provisions of the Mining Charter.
Mr Shivambu suggested that SA move away from the model for controlling the abuse of transfer pricing, which had been adopted by the Organisation for Economic Development and Co-operation and which he said was not suitable for SA.
The anti-avoidance laws of Argentina, Brazil, Bolivia and India should be used as a model for SA when it refined its own legislation related to transfer pricing abuse, he said.
Mr Shivambu also proposed that multinational corporations should be required to submit reports of the countries in which they have subsidiaries.
Parliament should also set up a transfer pricing commission to facilitate more robust engagement on the subject. State control and ownership of strategic sectors, especially mining, had to be part of a comprehensive solution to deal with transfer pricing abuse.
The Alternative Information Development Centre (AIDC) urged that the capacity of the Companies and Intellectual Property Commission (CIPC) and SARS should be beefed up so that they could properly monitor and investigate the practice.
It also recommended that SA look critically at the nature of the foreign direct investment it wanted to attract and should not welcome all uncritically as some could result in the outflow of more capital through transfer pricing and other means than inflows.
AIDC economist Dick Forslund urged that there be greater public disclosure of the financial statements of multinational companies and their local subsidiaries, which should be required to lodge them with the CIPC. This was the only way to get to grips with the problem, he said. Transparency was key, he said.