PKF Liberia and PKF Kenya host Transfer Pricing Seminar
01 Feb 2018
Accountants Hold Transfer Pricing Workshop
Tuesday, January 30th and Wednesday, January 31, 2018 Liberian accountants in public practice and their clients gathered at the Monrovia City Hall, 9 AM to 5 PM each day for a Transfer Pricing Training Workshop. The workshop has been organized by PKF Liberia (a leading firm of Certified Public Accountants in Liberia) in collaboration with PKF Kenya. The two expert facilitators of the workshop were Mr. James Mulili, Director for Taxation at PKF Kenya and Mr. John Magu, Senior Manager for Taxation, also at PKF Kenya. Senior level representatives of the Liberia Revenue Authority (LRA) were present at the sessions of the Transfer Pricing (TP) workshop.
What is Transfer Pricing (TP)?
Transfer Pricing is a trending taxation issue worldwide. It has to do with prices that multinational enterprises (MNEs) charge for goods and services delivered to their subsidiaries and associates in other countries. How such goods and services are priced between members of the same multinational enterprise can have a significant effect on taxes that are paid by either the seller or the buyer. One variation of such Transfer Pricing practices is that a member company of a multinational located in a country with zero taxation (e.g. Dubai or Saudi Arabia) or in a country with low taxation regime (e.g., Cayman Island, Ireland, Mauritius, etc.) sells goods and/or services in a country where enterprise profits are taxed.
The item sold to the member company in a country with a high taxation regime may be deliberately priced significantly higher than would obtain if the receiving company had bought the items in question (goods and/or services) from an unrelated party. When this is done, the group of companies, taken as a whole, benefits in two ways. Firstly, the revenue of the seller is either not taxed at all (e.g., in Dubai, Saudi Arabia, etc.); or is taxed at a low rate (e.g., in Cayman Island, Ireland, Mauritius, etc.) Secondly, because the price at which the item is sold to the buyer is high enough to depress the taxable profits of the buyer to a lower level than would otherwise apply if the same or a comparable product were obtained from an unrelated party. Alternatively, a seller in a high tax country may sell goods or services at a lower rate than would apply if the same or similar transaction were between unrelated parties. Either way, practically the same profit shifting between or among group members is achieved.
This type of product pricing within the same multinational group that has subsidiaries in various countries all over the world is what is technically referred to as Transfer Pricing. It refers to how goods and services are priced between related parties, i.e., between a buyer located, say, in Liberia that is a member of the group of companies, from a seller in another country that is also a member of the same group of companies. Many multinationals adopt and follow Transfer Pricing practices that are fair and above board. However, there are also many others that adopt and follow Transfer Pricing practices whose sole or principal purpose is aimed at shifting taxable profits from countries with less favorable tax regimes to those with more favorable regimes. Where this occurs, it has the tendency to undermine the revenue collection efforts of developing economies like Liberia.
In recent times the Organization for Economic Cooperation and Development (OECD) has spearheaded an international movement to effectively deal with unfair Transfer Pricing practices. Towards that end the OECD has over the years, particularly since 2003, developed a series of guidelines to help developing economies deal effectively with harmful Transfer Pricing practices that are technically referred to as tax Base Erosion and Profit Shifting (BEPS) Action Plans.
On November 11, 2016, under an official Gazette of the Government of Liberia of that date, the Liberia Revenue Authority (LRA) promulgated the Liberia Income Tax Transfer Pricing Regulations 2016. The regulations came into effect on July 01, 2016. It is, in effect, Liberia’s tax law on Transfer Pricing (TP) practices. Upon issuance of that Regulation, the Liberia Revenue Authority (LRA) has joined other tax administrators around the world, particularly in developing economies in efforts to tackle TP practices that erode the tax base of developing economies such as Liberia. However, the Regulation mentioned above is new to affected taxpayers in Liberia. This is where PKF Liberia has stepped in. PKF Kenya has had a vast experience in Transfer Pricing (TP), not only in Kenya but also in much of Eastern and Southern Africa. In consequence, PKF Kenya has emerged as a Transfer Pricing expert and authority in Africa. It is on that basis that PKF Liberia has collaborated with PKF Kenya in spearheading the Transfer Pricing workshop earlier referred to. With initial back‑office support provided by PKF Kenya, PKF Liberia will be happy to provide Transfer Pricing tax filing and Transfer Pricing Policy development services to affected taxpayers in Liberia. These two tax filing documents are required by the LRA Regulation earlier referred to above.
PKF Liberia and PKF Kenya are member firms of PKF International, a global association of firms of professional accountants with 440 offices situated in five continents in over 150 countries around the world. The PKF International network is ranked among the top ten networks of professional accountants in the world.
Posted in the New Democrat Newspaper 1 February 2018