A report by the Alternative Information and Development Centre (AIDC) has exposed the malpractice of transfer pricing by mining giants, with an estimated R100-billion flowing out of the country annually.
Commenting on the report, AIDC economist, Dick Forslund, said that many multinationals were involved in transfer pricing activities and drastic steps had to be taken to stop the behaviour.
He said: “We’ve got to do something about it. We have to develop a proper protocol.”
Transfer pricing involves the setting of prices for goods and services sold between entities within the same corporation. Businesses use this method to transfer pretax income to lower-tax jurisdictions. The challenge facing regulators like the South African Reserve bank (SARB) and South African Revenue Services (SARS) is that, grey areas in legislation make the practice legal in some cases and illegal in others. And companies have been exploiting this loophole to their advantage and are making enormous gains. Clearly, big businesses gain is the economy’s loss.