Kampala. As many developing economies grapple with the problem of profit repatriation by multinationals, Indian chartered accountants have advised government to tighten transfer pricing policies if it is to curb the vice.
Speaking during a public lecture organised by the Indian Business Forum in Uganda in Kampala last week, Mr T.N. Manoharan, the former president of the Institute of Chartered Accountants of India Association, said like many developing countries, Uganda is losing huge sums of money due to abusive transfer pricing.
Transfer pricing is when two companies that are part of the same multinational trade between each other after agreeing on a particular price of a commodity or service.
Mr Manoharan said transfer pricing, which sets price of goods and services sold between associated legal entities, is often manipulated with the intent of attracting low tax billing.
“The concept itself is not illegal but many companies manipulate it as a way of attracting less tax bills,” he said, calling for increased sensitisation in order to encourage cross border transparency to reduce profit repatriation.
Mr Protazio Bemugisa, the Uganda Revenue Authority (URA) commissioner internal audit and compliance, said the matter continues to be a challenge as it shifts profits from Uganda to other countries.
“Government gazetted a set of transfer pricing regulations in 2011 to guide the whole concept. We (URA) have set up a unit to handle it [transfer pricing],” Mr Bemugisa said on the sidelines of the lecture, adding: “We have already issued notices to all accountants to submit their transfer pricing plans for review.”
Mr Rajesh Chaplot, the Indian Business Forum in Uganda secretary general, said if transfer pricing regulations are implemented in “good spirit”, it will help URA to realise more revenues lost through abusive transfer pricing.
The illegal part
Transfer pricing is not, in itself, illegal or necessarily abusive. What is illegal or abusive is transfer mispricing, also known as transfer pricing manipulation or abusive transfer pricing. (Source: Tax Justice Network).