Transfer Pricing

Human capacity development program: overcoming the challenges of transfer mispricing in the mining sector in Latin America and the Caribbean

20.06.2018 |

In taxation and accounting, transfer pricing refers to the rules and methods for pricing transactions within and between enterprises under common ownership or control. Transfer mispricing can be used to manipulate the tax base and to avoid tax payments. It furthermore leads to an increasing pressure on public budgets and limits the countries’ options to finance their own development and their achievement of the SDGs as well as the goals of the Addis Abeba agenda. In order to strengthen the capacities of tax authorities and mining ministries in partner countries with an active and relevant extractive sector, a human capacity development program with the aim to provide tools for the officials dealing with tax control of the mining sector was developed. This program was elaborated by the Extractives for Development (X4D) sector program and the regional program Regional cooperation for a sustainable management of the mining sector in the Andean countries on behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ).

The digital program was developed in two phases. The first phase included a 3-months period of virtual modules covering general aspects of transfer mispricing and base erosion and profit shifting (BEPS) followed by the specific relations of those phenomena in the mining sector. BEPS refers to corporate tax planning strategies often used by multinational companies that artificially shifts profits from higher-tax locations, to lower-tax locations, thus eroding the tax-base of the higher-tax locations.The second phase was a 3-day presence training session where the participants had the opportunity to go deeper into each topic, to share their experiences comment and discuss practical work gained during the virtual modules and to analyze new practical cases.

The training program created new capacities for the partnership with the Interamerican Center for Taxing Administrations – CIAT to analyze the phenomena of transfer mispricing and to serve as a regional platform for such discussions. There is a big interest in continuing the cooperation to deeper strengthen the capacities and to further coordinate inter-institutional work between mining ministries and tax administrations, which is one of the biggest weaknesses identified.

As a result of this human capacity development project, 26 officials from mining ministries and tax administrations (of whom 53% were women) from 12 countries (Argentina, Bolivia, Brazil, Colombia, Chile, Dominican Republic, Ecuador, Guatemala, Mexico, Panama, Paraguay and Peru) are now capable to analyze the transfer mispricing in the mining sector phenomena and to propose recommendations to avoid the base erosion. Moreover, a network of international and regional experts is in place, complementing and following a previous experience implemented by CIAT, GIZ (through the Combating illicit financial flows program) and the World Bank in 2017.

Complementary, the Combating illicit financial flows program has supported CIAT in the research and diagnosis on the BEPS and mining relationships in Latin America and the Caribbean region. A report of the findings including recommendations will be launched in the coming months and discussed in different regional and global events. This ongoing work will serve as a new technical input for future discussions.

Further information can be found in this Link or please contact Sophie Girke

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