A South African panel of experts is recommending that specialist auditors should be used to examine group accounts for transfer pricing practices that amount to tax evasion or facilitate illicit financial flows (IFFs).

The Davis Tax Committee has submitted a report with these recommendations to South Africa’s finance minister, Malusi Gigaba.

Inter-group transactions

The committee recommends that specialist auditors should be sent in to look at all the companies in a group as a whole.

Their aim would be to evaluate complex inter-group structures and transactions that large groups can employ.

Outmoded tax system

The international corporate tax framework has not kept pace with the changing business environment the committee found.

It says taxpayers, especially multinational enterprises, are able to artificially reduce their taxable incomes by shifting profits from high-tax to low-tax jurisdictions, even when there has been little or no commercial activity in the latter.

Mismatched prices’

The report says South Africa is particularly vulnerable to transfer pricing techniques that may substantially price goods and services transferred between cross-border connected parties at values that mismatch market prices.

The committee expressed concerns however that the South African tax authorities’ personnel and ICT capabilities may need to be developed and strengthened to cope with the complexities of multinational enterprises’ accounting systems.

Categories: Trade Based Financial crimes News