Mazars’ leading tax specialists conducted a seminar on transfer pricing in Gaborone on Thursday. David Sayers – Head of Mazars International Tax Practice at Mazars UK and Charl Hall, a Tax Consultant at Mazars Cape Town were the main speakers. The term transfer pricing, according to Sayers, refers to the price at which a company undertakes transactions with associated enterprises. Associated enterprises may mean a situation where one enterprise controls another or when two or more enterprises are under common control. Additionally control can be as low as 40 percent in Joint Ventures (JV). Transactions undertaken through transfer pricing may include goods, property as well as financing transactions. Sayers – who is the chairman of Mazars’ Global Transfer Pricing Group with 18 years’ experience working in transfer pricing assignments across the globe – noted that the Base Erosion and Profit shifting (BEPS) Action Plan as designed by the Organisation for Economic Cooperation and Development (OECD) has been put in place to eliminate tax avoidance practice as well as “double non-taxation of income”. He said BEPS specifically targets practices of income tax base erosion, including through expenses deduction, use of hybrids and cross-border profit shifting practices, which includes shifting profit to offshore or low-tax jurisdictions, where no substance exists and no value is created. According to Sayers – the BEPS Action Plan addresses the tax challenges of the digital economy and neutralises the effects of hybrid mismatch arrangements. The action plan also limits base erosion via interest deductions and other financial payments as well as counter harmful tax practices more effectively, taking into account transparency and substance.
Sayers also touched upon harmful tax regimes, which imposes no or low effective tax rates on income from geographically mobile financial and other service activities and the regimes were ring-fenced from domestic economy & lacked transparency with no scope for effective exchange of information. Some of the factors of the harmful regime include foreign source income exempt from residence country taxation, negotiable tax rate or tax base, failure to adhere to international TP principles, existence of secrecy provisions and where the regime encourages operations or arrangements that are purely tax-driven and involve no substantial activities. According to Charl Hall, currently there are no formal transfer pricing regulations in Botswana, though Finance Minister Kenneth Matambo has proposed the introduction of transfer pricing rules in his 2017/18 budget speech. Matambo noted in February that his ministry was considering proposals from the Taxation Review Committee which include introduction of Transfer Pricing rules in the Income Tax Act that would curb any undesirable tax avoidance as well as underscore the alignment of the country’s tax system to international best practice. Though rules are not yet in place and would probably take a bit long to be, Hall said BURS conducts transfer pricing audits under section 36 of the Income Tax Act (general anti-avoidance provisions). Hall said once in place, the transfer pricing rules may follow the OECD transfer pricing guidelines and said from the picture painted is that the country is moving towards international standards.