Transfer Pricing Defined

1
Transfer Pricing Defined

• A price negotiated between two related persons
• A price that is affected by that relationship
• A price that is different from the price derived
  from two unrelated parties trading at Arms Length

2
Why is Transfer Pricing important?

• Substantial Growth in trade between Multinational
  Enterprises (MNE) globally
• Different Tax rates and rules between States
• Tax is a cost of the Total MNE
• MNEs concern is overall Profitability in a
  worldwide basis

3
Current Provisions in TT Laws

• Section 10(1)b of the ITA places a limitation of
  1 on Management Charges
• Section 67 gives the IRD the power to disregard
  any artificial or fictitious transactions
• In 2006 Section 10(1)b increases the limitation
  to 2 and defines what is Management Charges.

4
OECD Models

• Standard is the Arms Length Principle
• Related Parties referred as Associated
  Enterprises
• Comparability Concept
• Pricing Methods

5
Current Trends

• Legislation to deal with Transfer Pricing
• Legislation to report Transfer Pricing
  Transactions
• Charging Penalties for non-disclosure
• Training of Staff
• Changing Procedures to act on information received

6
Advanced Pricing Agreements

• Defined as an Agreement that determines the Price
  in Advance
• Advantages to Tax Administration and MNEs
• Disadvantages to Tax Administration and MNEs

7
Thin Capitalisation

• Thin Capitalisation occurs where companies are
  financed mainly by Debt
• Legislation to limit rate and debt to equity ratio

8
Conclusion re Transfer Pricing

• Recognition of the need to deal with Transfer
  Pricing Issues
• Legislate to deal with the issues
• Allocate Adequate Staff
• Source Expert assistance
• Be Cautious Everyone believes the bigger piece
  of the Pie belongs to them

9
Conclusion Other

• Introduce a Tax that may be easier to administer
• Ensure that persons contributing to the MNEs
  profitability is well compensated.
• Encourage government to introduce measures to
  cause investments in the country and people