How digitization could help Africa gain billions by curbing transfer pricing

Africa is losing billions of dollars annually due to transfer pricing and trade mis-invoicing by multinational companies. To address this issue, the 10th Annual Africa Transfer Pricing Summit has brought together tax officials to discuss digitization as a solution. Michael Hewson, the Director and Founder of Graphene Economics, joined CNBC Africa to shed light on the discussions and proposed solutions at the summit. The summit, conducted virtually with participants from across the continent and globally, has been a platform for revenue authorities from East Africa, West Africa, and Southern Africa to share insights on trends, focus areas, and concerns. Discussions have centered on technical issues such as debt pricing, digitization, restructuring, and the impact of COVID-19 on inter-company transactions from a transfer pricing perspective. These topics are crucial for multinational companies operating in Africa. The COVID-19 pandemic initially disrupted supply chains, leading to shortages and production challenges for many businesses in Africa. Companies faced profitability setbacks as they grappled with supply chain crises and restrictions on operations. However, certain digital service industries, like online gaming and entertainment platforms, thrived amidst the shift to online activities. Despite initial challenges, businesses have shown signs of recovery over the past months, with some nearing pre-pandemic levels of production and cross-border trade. One significant development in the global tax landscape is the recent proposal for a 15% global tax deal for corporates. This deal aims to create a level playing field and prevent tax abuse by companies in lower-tax jurisdictions. While this agreement may impact multinational companies operating in low-tax areas, the focus on transfer pricing remains crucial. Ensuring fair pricing across borders is essential, even in jurisdictions with similar tax rates, to prevent revenue loss for governments. Hewson emphasized that the global minimum tax deal will affect large corporations, but individual scrutiny of cross-border transactions remains necessary to address transfer pricing challenges effectively. While the deal may reduce incentives for setting up operations in low-tax jurisdictions, the focus should remain on ensuring fair pricing and avoiding tax manipulation.”