Tax experts tip government on new transfer pricing law

As government prepares to implement a new transfer pricing policy on July 1, experts have called on the Rwanda Revenue Authority (RRA) to clarify how it will be administered. Tax experts say the methodology that will be used to conduct transfer pricing audits is not clear, adding that there is also lack of skilled manpower, among others. Transfer pricing involves setting of the prices for goods and services traded between related legal entities in an enterprise. This is especially when two companies of the same multinational group trade with each other. David Baliraine, the EY (formerly Ernst&Young) associate director for tax services, also said the law does not give firms sufficient guidelines on how they can prepare ‘proper’ transfer pricing documents to ensure proper administration. He added that the law does not specify the minimum requirements in terms of regulations and guidelines for proper implementation. The tax expert also calls for training of those at the heart of implementation to equip them with necessary skills to administer the policy without hitches. Government announced a new policy in the 2016/17 fiscal year budget on transfer pricing that introduces changes on how law No 16/2005 of 18/08/2005 on direct taxes on income will be administered. The new policy obliges tax payers to submit transfer pricing documents along with corporate income tax returns of a similar period, firms are also expected to make transfer pricing policies, detailing all transactions with related parities and entities. It also imposes a 2 per cent fine of turnover for failure to comply with the filling requirements. The policy is expected to help plug loopholes and deter any tax leakages. However, experts now say the law only caters for traditional transaction methods, like cost plus method and resale price, as the only means of determining third-party prices. The tax body is expected to use other “less direct” measures, such as gross margins on third-party transactions, with the same procedures on the transactions under review, while enforcing the law. Baliraine said it does not say how interrelated transactions will be handled. He was on Monday speaking during a budget breakfast meeting organised by EY, a global audit and advisory firm, in Kigali. He advised RRA to prepare staff and tax advisors on the specific procedures that will be used to conduct tax pricing audits. He argued that transfer pricing taxes needs a lot of preparations, and expertise for proper execution. “There has to be clarity on what to expect, and room for advancing pricing agreements along value chain,” he said. Rwanda has been reviewing its Organisation for Economic Co-operation and Development (OECD) based transfer pricing rules to make guidelines under the Commissioner General’s office. However, the tax body has assured taxpayers that it is ready to enforce the new policy as provided by law. EYs Baliraine. (Nadege Imbabazi) Richard Tusabe, the RRA Commissioner General, said the tax body is well-equipped to start conducting transfer pricing audits. “We have already conducted enough training, equipping our staff with the required expertise to conduct tax pricing audits. We will continue to build our capacity to handle this and other roles under our mandate,” he noted. Tusabe added that where the need arises for specialised skills, they will not hesitate to work with tax experts. In an earlier interview with The New Times, the I&M Bank boss, Robin Bairstow, said they are waiting to see how it is implemented. A Kigali businessman said some aspects of the new policy need to be made clear to ensure better enforcement. He also said transfer pricing is one of the key challenges affecting trade in the region. Harmonisation Investors and business leaders recently complained about lack of uniform transfer pricing policy as a major obstacle affecting regional trade. They urged regional governments to harmonise their transfer pricing laws, arguing that the absence of such laws affects investment opportunities in the region. East African Community business leaders urged regional governments to harmonise their laws in accordance with OECD guidelines, saying this will boost cross-border trade. However, the RRA boss confirmed Rwanda has taken great steps towards policy harmonisation, saying they will continue to work with tax agencies in the region to have a uniform transfer pricing policy.

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Tax experts tip government on new transfer pricing law