Transfer pricing affects tax returns

Malawi has been named as one of the countries where transfer pricing—the practice of underreporting profits to evade tax—occurs.

The report released last week by the United Nations Conference on Trade and Development (Unctad) shows that other countries in the region that experience transfer pricing include Tanzania and Zambia.

Although the United Nations agency has not specifically identified the industries in Malawi where transfer pricing occurs Unctad has indicated that the malpractice mainly occurs in energy and resource industries.

According to the report, in Australia, by July 2013 the tax office was running 26 investigations into suspected profit shifting, 15 of which were in the energy and resources sector.

According to an article by The Sydney Morning Herald published last year International pressure on Australian miners operating overseas was rising, with a new report by social justice group ActionAid claiming poor countries are losing more than $130 billion in tax revenues by giving generous tax breaks to big companies, including Australian miners.

According to the article Uranium producer Paladin Energy was one Australian miner under scrutiny for its tax arrangements in Malawi, where it runs a mine in Karonga.

The article also quotes a report by Norwegian Church Aid which alleges that there are discrepancies between Paladin’s reported tax and the tax it actually was paying the Malawian government, and says other payments by Paladin in Malawi are lower than the company reports.

Earlier audit firm Deloitte partner Lekani Katandula said transfer pricing—shifting profits from one subsidiary to another to take advantage of lower tax rates when there are supplies between them—robs off taxable income from a country.

Katandula noted that Malawi did not have transfer pricing regulations up to three years ago and as a result there are some companies that have been caught up with the Malawi Revenue Authority (MRA) for being suspected to be involved in transfer pricing.

He further said it is clear that companies in Malawi do not have all the necessary documentation to show that their transfer pricing is fair.