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Transfer pricing: Companies illegally hide profits
The tax authority is warning companies about using ingenious ways to hide profits.
The Guyana Revenue Authority (GRA) is looking at the issue. On Thursday it admitted that it has far-reaching repercussions for taxes and shareholders as well.
The issue has been a touchy one with several large manufacturing companies named as using their accounting process to buy from and pay their sister companies or subsidiaries for supplies and services.
In business terms, the process specifically engaging GRA’s attention is described as ‘transfer pricing’. While local businesses are arguing that nothing is wrong in sourcing services and goods from their subsidiaries, GRA reportedly has been finding some strange costs being charged.
At the end of the day, the company would reflect lower profits because of those charges.
During a press conference, Thursday, with his senior officers at the GRA’s headquarters, Commissioner-General, Godfrey Statia, was insistent that transfer pricing may be illegal.
He noted that the issue has been addressed at the United Nations level with even a document published establishment why it should not be accepted.
Statia noted that transfer pricing is alive and well with GRA encountering significant cases.
He said that there have indeed been an increase in the number related parties transactions, with even shell companies opened, invoices written and “all those things”.
The official explained that transfer pricing works both ways–the value of the goods being increased or decreased to suit the situation. However, the issue has an impact elsewhere.
He explained that when there is an increase in the cost of manufacturing, its affects shareholders value.
These all have impact on the country’s gross domestic product as well.
He said that in many cases, a lot of information presented by companies is false.
GRA has been battling with a number of large companies, including beverage companies, on the issue, sources indicate.
With GRA now moving to introduce a new Customs software, ASYCUDA, Statia is hoping that the problem can be addressed.
ASYCUDA is the acronym for Automated System for Customs Data (ASYCUDA)- a computerized system designed by the United Nations Conference on Trade and Development ( UNCTAD) to administer a country’s Customs.
According to the Commissioner-General, the issue is not an easy one with arguments back and forth even at GRA on how to tackle it.
On the United Nations website, a publication- Transfer Pricing in the context of Financing for Development by Alexander Trepelkov, Director, Financing for Development Office Department of Economic and Social Affairs, explained that transfer pricing refers to the setting of prices for cross-border transactions between related parties belonging to a multi-national group.
There are several such groups in Guyana. Some are based overseas.
The document explained that transfer prices serve to determine the income of both parties to these transactions.
“Accordingly, transfer prices influence the tax base of the respective countries involved in such transactions. If prices for intra-group transactions do not reflect open market conditions, there is a risk that less income, or more expenses, might be reported in a country, where more income, or fewer expenses, should have been reported.”
Officials indicated last week the GRA has been meeting resistance from a number of companies after closer scrutiny came from authority.
GRA has over the years been battling tax evasion and non-compliance, despite a large taxpayers base.
A shortage of manpower, space and corruption has all been slowing the fight.
However, GRA has vowed to go after non-compliant companies, engaging a number of them in recent months.
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