Namibia: Transfer Pricing update July 2015
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In Namibia, Transfer Pricing Guidance Unclear Even as Auditors Undergo Training
What’s New: Namibia is training staff for a transfer pricing unit it is creating within the Large Taxpayers’ Office of its Inland Revenue Department.
Context: Audit enforcement currently is spotty and guidance is unclear as Namibia has not stated its position on the use of a single market price to calculate transfer pricing.
Going Forward: Despite the lack of formal documentation requirements in Namibia, companies will need to document their transfer prices in order to rebut the tax authority’s position.
July 7 — Companies operating in Namibia need to demonstrate that they have developed a sound transfer pricing policy in accordance with the arm’s-length principle by documenting the policies and procedures as the country’s tax authority tightens compliance with its transfer pricing rules.
Nelson Lucas of PwC in Windhoek told Bloomberg BNA July 6 that although drafting or filing a transfer pricing report is not mandatory in the African nation, taxpayers need to ensure they have the necessary documentation in place to prove they are compliant with Namibia’s domestic laws.
Inland Revenue Department (IRD) Acting Commissioner Justus Mwafongwe hinted in June that the authority would be asking companies for their transfer pricing documents as it looks to implement the country’s transfer pricing regulations.
This has now become a high priority for the IRD as it has identified transfer pricing as a key focus area in line with global market trends. However, despite the fact that the regulations have been in place since May 14, 2005, no formal transfer pricing audit has been established by the IRD and the rules have not been actively enforced since their introduction, Lucas said.
As with most African countries trying to put in place transfer pricing regulations, Namibia is facing human resource problems including a lack of skills, knowledge and experience, and that is hindering successful implementation. To address these shortcomings, the IRD has announced it will create a specialist transfer pricing unit within the recently established LTO (Large Taxpayers’ Office) and already have sent staff on training, Lucas said.
Anita Peukef, commercial manager of the LTO, told Bloomberg BNA that the department is “in the process of getting staff trained,” though this seems to have taken significantly longer than anticipated.
No Position on ‘Single Market Price.’
Following controversy in some African countries over the use of a single market price to calculate transfer pricing, Namibia has not yet stated its position on the point in contention, Lucas said.
Kenya’s tax authority had attempted to curb multinational companies’ tax avoidance through proposed transfer pricing regulations mandating the use of the “single market price.” However, stakeholders have opposed the proposal and instead suggested that the authorities should consider the use of “many prices,” or a range of results, the approach practiced in Organization for Economic Cooperation and Development countries.(24 Transfer Pricing Report 23, 5/14/15).
Due to a lack of auditing by the IRD, there has been no set practice implied or suggested by the authority for computing prices in Namibia, Lucas said.
According to Lucas, the 2005 regulations state that “cross-border transactions between connected persons should be at arm’s length.” However, should this not be the case, the finance minister may, in determining the taxable income of either the purchaser or supplier for the transaction, adjust the consideration for the international transaction to reflect an arm’s-length price for goods or services.
Furthermore, the rules allow the tax authority to charge a 200 percent levy on any amount underpaid for tax purposes, with interest being charged on the unpaid amounts at 20 percent per year, Lucas said.
Demonstrating Compliance
He added that Practice Note 2/2006, which has applied since Sept. 5, 2006, “also focuses on the regulatory requirements in terms of the taxpayer needing to prepare and keep documents as evidence that their cross-border transactions took place at arm’s length.”
Companies need to demonstrate that they have developed a sound transfer pricing policy in terms of which prices are determined in accordance with the arm’s-length principle by documenting the policies and procedures for determining those prices, Lucas said.
“A taxpayer is required to be in possession of transfer pricing documentation. If the minister, as a result of an examination, substitutes an alternative arm’s-length amount for the one adopted by the taxpayer, the lack of adequate documentation will make it difficult for the taxpayer to rebut that substitution, either directly to the minister or in the courts,” Lucas said.