Home' Trinidad and Tobago Guardian : October 30th 2014 Contents OCTOBER 2014 • WEEK FIVE www.guardian.co.tt BUSINESS GUARDIAN
COMMENTARY | BG3
Chief editor-business: ANTHONY WILSON
Editing and design: NATASHA SAIDWAN
Fax: (868) 623-2050 (Editorial)
Fax: (868) 623-2050 (Advertising)
22-24 St Vincent Street,
PO Box 122.
The United Kingdom advocacy group Tax
Justice Network---which focuses on the
harmful impact of tax avoidance, tax com-
petition and tax havens---describes transfer
pricing as "one of the most important
issues in international tax." The network
says it occurs "whenever two companies
that are part of the same multi-national
group trade with each other."
For example, when a Brazil-based subsidiary of an inter-
national energy giant buys something from the T&T-based
subsidiary of the energy giant and the parties establish a price
for the transaction, that is transfer pricing.
The tax advocacy group adds: "Transfer pricing is not, in
itself, illegal or necessarily abusive. What is illegal or abusive
is transfer mispricing, also known as transfer pricing manip-
ulation or abusive transfer pricing. (Transfer mispricing is a
form of a more general phenomenon known as trade mispricing,
which includes trade between unrelated or apparently unrelated
parties -- an example is reinvoicing.)"
According to the Tax Justice Network: "It is estimated that
about 60 per cent of international trade happens within, rather
than between, multinationals: that is, across national boundaries
but within the same corporate group. Suggestions have been
made that this figure may be closer to 70 per cent."
Former Finance Minister Winston Dookeran, in delivering
the 2012 budget, placed the issue of transfer pricing squarely
on the national agenda when he said: "Transfer pricing regimes
are becoming common features of tax legislation in developing,
emerging and advanced countries.
"The issue of being able to verify revenue has become
increasingly critical in jurisdictions where large multinational
corporations operate. Most countries have adopted the principles
of "The Transfer Pricing Guidelines for Multinational Enterprises
and Tax Administrations" developed by countries of the Eco-
nomic Co-operation and Development group.
"Recently T&T became the 102nd member of the OECD
Global Forum on Transparency and Exchange of Information
for Tax Purposes. In order to converge to best practice, T&T
proposes to include a transfer pricing regime based on the
principles embodied in the OECD guidelines."
The 2012 budget was delivered by Mr Dookeran on October
Just short of three years later, in an interview with the
Business Guardian the week before the 2015 budget, T&T's
Minister of Finance Larry Howai said that he had received the
first draft of a report on tax reform from an international
organisation that he did not name.
"They have identified what we need to do. There are a
couple of big areas that I need to start regularizing, where I
am having some challenges, over and above the normal chal-
lenges of tax collection.
"A big issue I have transfer pricing, which I think has a sig-
nificant impact on our income. I have just done a Note for
Cabinet to give me the approval to proceed with the hiring
of some consultants to help me put a transfer pricing mechanism
in place. And that's big money; at least $2 billion a year in
loss revenue, we estimate."
Asked by a Business Guardian journalist whether he was
referring to energy companies operating in T&T, Mr Howai
said: "We think that there are a couple of them that we need
to pay some attention to."
Asked whether these international energy companies establish
subsidiaries in low-tax jurisdictions and send monies earned
in T&T to those low-tax regimes, Mr Howai said: "I think it
is a big leakage and if we could plug that hole it would be
quite significant for us. So that's a big one."
Now, Mr Howai's answers, as usual, are quite revealing:
1) The fact that he is able to put the number of $2 billion
on the amount of tax revenue that it is estimated the Gov-
ernment is losing from transfer mispricing is quite interesting,
as is his reference to it being a "big leakage" that would be
"quite significant" for revenue collection by the Government;
2) It is also noteworthy that the Finance Minister has an
idea of the number of companies (a couple) that may be
depriving the Board of Inland Revenue (and the taxpayers of
the country) of revenue as a result of practices that the Gov-
ernment "need(s) to pay some attention to."
If the minister is to be taken literally, the question needs
to be asked: Who are the two or three companies that are
engaging in practices that are costing T&T taxpayers about
$2 billion a year.
The issue, of course, is if the issue of transfer pricing has
been identified as a "hole" that needs to be "plugged," why
has it taken the Government almost three years from the point
when Mr Dookeran outlined the policy agenda in the 2012
budget to get around to considering the appointment of con-
sultants to address the problem?
If an estimated $2 billion a year in tax revenue is being lost
as a result of transfer mispricing, is the Minister of Finance
aware that the three-year delay has cost the country $6 bil-
And if it takes two more years to implement a transfer
pricing regime, will the country not have foregone $10 billion
in revenue from the time the idea was floated to its incep-
In delivering the 2015 budget, Mr Howai said the following:
"We are continuing our focus on modernising our tax admin-
istration through the application of technology and enhanced
taxpayer engagement to improve the efficiency of tax collec-
"Over the past year, notwithstanding that some of our
objectives for the year were affected by industrial action, we
have completed the review of the recommendations of the
consulting group hired to assist with the review of our taxation
system, we have established a taxation committee which
includes stakeholder groups from the business and accounting
communities and we have resuscitated the Petroleum Pricing
"With respect to non-financial assets, the mapping and
valuation process has begun on fixed assets such as buildings,
machinery and equipment, land, roads and sub-soil assets as
well as contracts, leases and licenses.
"This exercise will provide further options for revenue gen-
eration and more effective."
How does Minister Howai's statement that the Government
is continuing its focus on improving tax administration with
a view to enhancing tax collection square with the proposal
that the Government would offer "a tax amnesty for tax penal-
ties and interest for late filing of returns and late payment of
income, corporation tax and Value-Added Tax, as well as busi-
ness levy and environmental levy."
Do the repeated tax amnesties---four in the last dozen years---
and the continued delay in the implementation of a transfer
pricing regime contribute to moral hazard by large companies
and wealthy individuals who may feel that the price of non-
compliance is to make some token payment during the amnesty
In your Sunday BG: The EY forum on transfer pricing
Which T&T-based companies
are guilty of transfer pricing?
Minister of Finance
Links Archive October 29th 2014 October 31st 2014 Navigation Previous Page Next Page