Guyana, Trinidad lack transfer pricing law to prevent massive loss

Guyana, Trinidad lack transfer pricing law to prevent massive loss – ECLAC Report finds

Mar 14, 2021 News

By Kiana Wilburg

International Oil and Gas Consultant, Anthony Paul

Kaieteur News – While Trinidad and Tobago and Guyana are at different stages in the lifecycle of their hydrocarbon industries, both are at risk of losing significant value if they fail to arm themselves with key mechanisms, particularly, rules and regulations that guard against transfer pricing. This much was noted in a report called, “Navigating transfer pricing risk in the oil and gas sector; Essential elements of a policy framework for Trinidad and Tobago and Guyana.”
This document was prepared by Sheldon McLean, Coordinator of the Economic Development Unit of the Economic Commission for Latin America and the Caribbean (ECLAC), and Don Charles, Policy Development Specialist in the Ministry of Trade of Trinidad and Tobago. Both received assistance from Antonio Rajkumar, an individual contractor at the ECLAC sub-regional headquarters for the Caribbean.
In the 2021 report, the analysts reminded that Trinidad and Tobago has over 100 years of experience in the oil industry, and over 20 years of experience in the export of Liquefied Natural Gas (LNG). By comparison, commercial discoveries of oil were made offshore Guyana in 2015, and the country commenced the export of crude oil in 2020. It therefore means that the Guyana hydrocarbon industry is still in its nascent stage, while that of Trinidad and Tobago’s is mature.
Although both CARICOM sisters are at different stages in the maturity of their industries, the analysts stressed that neither Trinidad and Tobago nor Guyana presently has a framework to address transfer pricing, or the loss of value from their hydrocarbon sector. For those who may not be aware, transfer pricing is when one division of a company charges another division of the same company a higher or lower price on an item. This manipulation of the price is done to avoid the payment of taxes to the country the company is in.
Since this scheme can result in nations losing billions of dollars, the ECLAC analysts agreed that it would be logical for transfer pricing legislation to be introduced in Guyana and Trinidad and Tobago. It should be noted however that this is not the first time Guyana is being warned to arm itself against the dangers of transfer pricing. Oil and Gas Expert, Anthony Paul has noted since 2016 that the local authorities should pay attention to what happened in Trinidad and Tobago, his home country which failed to protect itself against the use of this tactic.
He had pointed out during a previous interview with Kaieteur News that TT lost more than US$200M annually due to transfer pricing schemes of oil companies.
According to Paul, transfer pricing involves the purchasing of items from one company, or selling to related parties at artificially high or low prices. This is done to shift taxable income out of the hands of the host country. However, that is just one form of transfer pricing. When it comes to oil and gas, the schemes are many.
The Oil and Gas Consultant said, “In another form of transfer pricing, some companies use mechanisms to increase the reported cost of their operations to again, reduce profitability and tax burden.
“A common example is the bundling of services with affiliates overseas, so that there is no transparency on actual cost, but the high costs can be moved to higher profit centres. This has been going on for years in TT, with companies using different techniques, knowing well that Government does not routinely check across jurisdictions.”
He continued, “Another victim of such actions, of course, is the local service industries, who, through a series of meandering rationales are told that they are either suddenly not safe enough, certified enough or competent enough to deliver a service that they have been safely, efficiently and cost-effectively providing for years.”
The Chatham House Advisor added, “Suddenly, a foreign supplier is brought in, without necessarily having to go through the same hoops and is paid much more. Today, for instance, there are marine service companies working off the East Coast in TT, at the expense of locals and charging the operator up to 10 times the cost of the local who was doing it before.”
Paul said that examples on what to do in the oil and gas industry and how to protect Government revenue are all around Guyana.
“All its authorities need to do is simply pay attention.”