Multinational companies accountable for the bulk of illicit financial flows at 70 percent – EY
AUDITING firm EY Executive Director of International Tax- Transfer Pricing and Operating Model Effectiveness in Africa, Michael Hewson, says multinational companies are responsible for the bulk of the $50 billion leaving Africa through illicit financial flows (IFF), while corruption plays a lesser part.
Hewson in a presentation at an EY Zimbabwe Transfer Pricing seminar in Harare last week said multinationals account for 70 percent of global trade and deviation from market prices will distort tax liabilities of both the enterprises and affect the tax revenues of the tax administration.
He said tax authorities worldwide are all becoming more sophisticated and adopting more robust methods for dealing with multinational tax audits.
“Multinational companies contribute the bulk of US$50 billion Africa is losing through illicit flows each year while corruption is not that significant”, he said
“However, a majority of countries in the region have adopted taxation regulation on transfer pricing to curb the scourge,” he said.
Zimbabwe as part of the global economy effected new transfer pricing regulations on January 1, 2016 and the provisions augment the current anti-avoidance sections of the Income Tax Act. The new rules govern domestic transactions between associates as well as transactions with foreign entities.
According to the Reserve Bank of Zimbabwe (RBZ), Zimbabwe lost over US$500 million in 2015 through illicit financial outflows of which transfer pricing abuse is no exception.
Hewson who is based in South Africa said the transfer pricing regulations are not a deterrent to doing business in Zimbabwe but rather promote transparency and confidence.
“This improves the risk rating of Zimbabwe especially by businesses that are coming to do operate in the country,” he said.
Hewson said multinationals need to minimise risk of double taxation to invest and to grow macro-economic benefits.
EY Zimbabwe Executive Director of the Business Tax Advisory Division Ramek Masaire said the new tax regulations would help companies stay alert to changing market regulations.
“When you see transfer pricing developments in the rest of Africa it clearly shows how other countries are looking at how they can deal with that. One key thing that we must really focus on is the social impact for some of these issues”
“If you were to transfer your profits to other markets that could actually lead to exporting jobs which then means companies can no longer expand. If you are not going to remain part of the transfer pricing network when things start happening in other parts of the market that is when you will see its impact on your goods and services,” he said.
According to Masaire, the transfer pricing rules enable the Zimbabwe Revenue Authority (ZIMRA) to adjust transactions which are concluded on terms inconsistent with the arm’s length principle hence such adjustments have the potential to create additional tax liabilities.
“Therefore, the regulations enable companies to maintain their accounts on a solid basis”, he said. FinX
Follow us on Twitter @FingazLive and on Facebook – The Financial Gazette