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Transfer pricing rules in the extractive sector in Africa

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    oilTransfer pricing is the selection of prices to place values on transactions between entities in a legal environment within the same multinational enterprise (MNE). These are referred to as “command” or “intra-group” transactions, and may include the buying or selling of tangible and intangible assets, service provisions, financing of projects, allocation of cost, and expenditure sharing agreements.

    Irrespective of the price that may be set by the parties, it must operate within the agreement and that would be deemed as acceptable for both legal entities involved.

    When the parties involved in the transaction tries to distort the price as a way of reducing their overall tax amount, the pricing is said to be abusive.

    The African continent losses an estimated monetary value of $50 billion annually through illegal financial transactions according to the United Nations Economic Commission for Africa (UNECA) and this loss is dependent on mispricing in the extractive sector.

    Because majority of African countries are dependent on the revenue from the extractive sector, mispricing is heavily hits them hard through low revenue from taxation of the extractive companies that operate within their jurisdiction. This has made developing economies more vulnerable than any other economies worldwide therefore affecting their growth and development policies.

    In a survey conducted in 26 countries, it was observed that, few African countries have the capacity to implement transfer pricing regulations. The reasons for such slow-paced implementations are enormous but notably among them include lack of clear legislative instruments and guidance, limited administrative expertise and experience in transfer pricing sufficient to undertake audits; and the scarcity of information which plays a vital tool in the selection of cases for effective audits.

    With Ghana now joining the chain of nations in commercial oil and gas production, it is important for a clearer understanding of the concept of transfer pricing in not only the oil and gas sector but the other extractive sectors that have been the backbone for economic growth and development of the country through revenue generation in the form of taxation.

    The Natural Resources Governance Institute (NRGI) together with the Ghana Oil and Gas for Inclusive Growth (GOGIG) after a series of field surveys in Ghana will be officially launching the Ghanaian case study and technical roundtable discussions on the transfer pricing rules in the extractive sector. The launch is expected to bring together experts from Ministry of Finance, Institute of Fiscal Studies, Ghana Chamber of Mines, IMANI, World Bank, OSIWA, Kosmos Energy and Civil Society Organizations like Penplusbytes and media houses. It launch will take place on 7th July, 2016 at Alisa hotel in Accra.

    By: David Aduhene Tanoh-www.reportingoilandgas.com

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