A research report submitted to the Faculty of Engineering and the Built Environment, University of the Witwatersrand, Johannesburg, in partial fulfilment of the requirements for the degree of Masters of Science in Engineering by advanced course work and research, March 2017 / It is estimated that US$50 Billion is attributed to illicit financial outflows from Africa each year. This has created an environment in which African tax administrations have placed political pressure on industry and in particular the mining sector, to account for this erosion of tax bases across the African continent. Transfer pricing abuse by multinational enterprises in the mining industry has been attributed to a large portion of these illicit outflows. This report sets the objective of understanding African transfer pricing challenges, both general and mining specific, as well as initiatives addressing these challenges so as to identify the subsequent synergies and gaps that exist between the two. The following general challenges related to transfer pricing on the African continent were identified namely; effective policy and legislation addressing transfer pricing, sufficient skills and capacity in tax administrations, effective document requirements pertaining to transfer pricing transactions, access to comparable data databases and exchange of information between tax administrations. In addition to these general challenges, two mining specific challenges were identified namely; the complex nature of vertically/laterally integrated mining value chains and inadequate understanding by tax authorities of mining related transactions along the value chain in terms of function, asset and risk of each transaction. Of the six initiatives identified in the literature, the World Bank Group and Centre for Exploration Targeting sourcebook on transfer pricing in African Mining as well as the African Tax Administration Forum tax programs were selected through an Analytical Hierarchy Process as being the best aligned to deal with the challenges mentioned. Synergies between these two initiatives were identified in the areas of transfer pricing policy and legislation alignment as well as transfer pricing skills and capacity building. Gaps were identified under the practical ability to implement the outcomes from the World Bank Group sourcebook which requires a centralised body and multinational transfer pricing model positioned and able to carry out the transfer pricing recommendations from the sourcebook such as effective audits and skills and capacity building programs. The report concludes with a basic framework of how such a Multi-National Transfer Pricing Unit under ATAF might function, as a possible solution to addressing this gap. / CK2018

Thesis (MBA)--Stellenbosch University, 2006. / ENGLISH ABSTRACT: Governments do not want their tax collection to be affected by multinational companies that make use of distorted pricing models in order to maximize profits. For this reason Governments everywhere are implementing strict transfer pricing policies. These policies are mainly based on the OECD Guidelines with respect to transfer pricing. On the other hand, multinational companies do not want to be exposed to double taxation. The South African government also introduced regulations with respect to transfer prices set by multinational companies. Section 31 of the Income Tax Act 58, 1962, deals specifically with the issue of transfer pricing. This is fully explained in Practice Note 7 of SARS. RHI Refractories Africa, as part of the multinational company RHI-Ag, has to comply with SARS legislation. RHI Refractories Africa purchase many materials and products from the parent company for resale in the local market. The SEN is one such product and was selected for evaluation. This study found, after evaluation of the functions performed by RHI Refractories Africa and evaluating all the various preferred methods, the Resale Price Method (RPM) to be the most appropriate method to be used in the evaluation of the status of RHI Refractories Africa with respect to compliance with current SARS legislation. The gross margins eamed by RHI Refractories Africa on the sale of TYK and THOR SENs were compared. It was found that the gross margins earned on the sale of THOR SENs in the controlled transaction were actually higher than those earned in the uncontrolled transaction with TYK. The conclusion of this study is that RHI Refractories Africa does comply with current SARS legislation as measured against the guidelines of Practice Note 7 from SARS. This study further proposes that RHI Refractories Africa evaluate and document the process followed for all the inter-company transactions in order to ensure full compliance with SARS legislation. / AFRIKAANSE OPSOMMING: Regerings wil verhoed dat die belasting basis verklein word deur multinasionale maatskappye wat gebruik maak van prys modelIe wat daarop gemik is om belasting te ontduik en sodoende die marges van die maaskappye te verhoog. Vir die rede implimenteer regerings strenger maatreels om te verseker dat oordrag pryse markverwant is en bly. Die riglyne soos voorgestel deur die OECD word meestal as basis gebruik vir die opstel van lokale wetgewing. Terselfdertyd wil multinasionale maatskapye ook nie dubbele belasting betaal nie. Die Suid Afrikaanse regering het wetgewing daar gestel as deeI van Seksie 31 van die Inkomste Belasting Wet 58, 1962, wat spesifiek handel met oordrag pryse. Die wetgewing word verder verduidelik in Praktiese Nota 7. RHI Refractories Africa, as deeI van die multinasionale maatskapy RHI-Ag, moet voldoen aan SARS wetgewing. RHI Refractories Africa koop 'n verskeidenheid van materiale en produkte van die moeder-maatskapy vir herverkoop in die lokale mark. Die SEN is een so 'n produk en is gekies vir evaluasie. Die funksies wat RHI Refractories Afrika uitvoer ten opsigte van die verkoop van SENs is ten volle ondersoek. Die verskillende metodes vir evaluering van die oordrag prys soos voorgestel deur SARS is ook ondersoek en daar is gevind dat die Herverkoop Prys Model (RPM) die mees geskikte model is vir RHI Refractories Africa om te gebruik in die evaluering van die verkoop van SENs. Die bruto marge wat RHI Refractories Africa behaal met die verkoop van TYK en THOR SENs is vergelyk. Daar is gevind dat die bruto marge wat behaal is met THOR SENs, as deel van die beheerde transaksie, in werklikheid groter is as die wat met TYK SENs in die onbeheerde transaksie behaal is. Die konklusie van die studie is dat RHI Refractories Africa wel voldoen aan die vereistes daar gestel deur SARS soos gemeet aan die riglyne van Praktiese Nota 7. Die studie stel voor dat RHI Refractories Africa al die intermaatskaplike transaksies evalueer aan die hand van die SARS riglyne om te verseker dat daar ten volle voldoen word aan die vereistes van SARS.

Abstract in English, Afrikaans and Zulu / In 2016, Zimbabwe introduced specific transfer pricing legislation to prevent abusive tax strategies by taxpayers. This study uses a qualitative interpretive inquiry to assess the adequacy of the new transfer pricing regime. This study contributes to the body of knowledge in that it explores transfer pricing as a tax avoidance tool, a concept that is at its nascent stage in academic taxation literature. Furthermore, it addresses a methodological gap by employing a qualitative inquiry in an area that is predominated by quantitative research. Indepth interviews and document review were used to gather data, and deductive content analysis was employed with the aid of ATLAS.ti 8™. This study confirms previous findings that tax consultants play a significant role in the compliance decisions of Multinational Enterprises (MNEs) through the examination of the exploitative strategies practiced by these MNEs. The comparison of the OECD and UN transfer pricing guidelines in search for the applicability of international guidelines to Zimbabwe’s specific needs helped uncover the contemporary dilemmas in global standards versus domestic standards. This study responds to the knowledge gap regarding the transfer pricing phenomenon in Zimbabwe through the lenses of an under-explored three-layered rationality concept; legal, implementation and exploitative rationality. The argument maintained in this study is that this rationality trichotomy is a useful lens to understand transfer pricing as a tax avoidance tool, and that international standards are not universal and so each country’s unique situation should be addressed at a domestic level. / Zimbabwe het in 2016 bepaalde oordragprysingswetgewing ingestel om onregmatige belastingstrategieë deur belastingbetalers te voorkom. Hierdie studie het ’n kwalitatief-interpretatiewe ondersoek gebruik om die toereikendheid van die nuwe oordragprysingsregime te assesseer. Die studie lewer ’n bydrae tot die kennismateriaal omdat dit oordragprysing as ’n belastingvermydingsinstrument ondersoek, ’n konsep wat in sy kinderskoene in akademiese belastingliteratuur staan. Dit verken ook ’n metodologiese gaping deur ’n kwalitatiewe ondersoek te gebruik op ’n gebied wat deur kwantitatiewe navorsing oorheers word. Omvattende onderhoude en dokumentbeoordelings is gebruik om data in te samel en deduktiewe inhoudsontleding is met behulp van ATLAS.ti 8™ gedoen. Hierdie studie bevestig vorige bevindinge dat belastingkonsultante ’n baie belangrike rol speel by die nakomingsbesluite van multinasionale ondernemings (MNO’s), gebaseer op die ondersoek van die uitbuitende strategieë wat deur hierdie MNO’s beoefen word. ’n Vergelyking van die Organisasie vir Ekonomiese Samewerking en Ontwikkeling (OESO) en die Verenigde Nasies (VN) se oordragprysingsriglyne om die toepaslikheid van internasionale riglyne ten opsigte van Zimbabwe se bepaalde behoeftes te bepaal, het gehelp om die eietydse dilemmas van globale standaarde versus huishoudelike standaarde bloot te lê. Hierdie studie stem ooreen met die kennisgaping rakende die oordragprysingsverskynsel in Zimbabwe deur deur die lens van ’n onderontgindedrielaag-rasionaliteitskonsep, naamlik wetlike, implementerings- en uitbuitende rasionaliteit, te kyk. Die studie voer aan dat hierdie rasionaliteitsdrieledigheid ’n nuttige manier is om oordragprysing as ’n belastingvermydingsinstrumente te verstaan, dat internasionale standaarde nie universeel is nie en dat elke land se unieke situasie derhalwe op ’n huishoudelike vlak aangespreek moet word. / Ngonyaka we-2016, izwe laseZimbabwe lithula imithetho ebhekene ngqo nokwedluliselwa kwezezimali zentengiselwano ukuvimbela ukusetshenziswa ngendlela esakuhlukumeza amasu ezentela ngabakhokhintela. Lolu cwaningo lusetshenziselwa uphenyo olukhombisa ukuhumusha okuphathelene nobungaki bento ukuze luhlolisise ukudluliselwa kwesikhathi sokuphatha esisha ekudlulisweni kokubekwa kwamanani emali. Ucwaningo lunomethelela olwazini olufanele ngokuthi lihlola ukubekwa kwamanani njengethuluzi eligwema ukukhokhwa kwentela, njengomqondo osesesigabeni sokuqala ukukhula ezifundweni zemibhalo yezentela. Ngaphezu kwalokho, sikhuluma ngegebe elikhombisa indlela yokwenza izinto ngokusebenzisa uphenyo olukhombisa ubungako bento endaweni egxile ocwaningweni olubheke obungako bento. Ukuthola ulwazi ngalokhu kuye kwasetshenziswa izinhlolokhono ezijulile kanye nokubuyekezwa kwemiqulu yamabhuku, kanye nokusetshenziswa kokuhlaziya okuqukethwe okuphunguliwe ngokubambisana nosizo le-ATLAS.ti 8™. Lolu cwaningo luqinisekisa okutholakale ngaphambilini okubonisa ukuthi abeluleki bezentela badlala indima ebalulekile ezinqumweni zokuthobela imithetho yezinkampani zamazwe angaphandle ngokusekelwe ekuhlolweni kokuxhashazwa kwamasu enziwa yizo izinkampani zamazwe angaphandle. Ukuqhathaniswa kwe-OECD kanye ne-UN mayelana nokudlulisela imihlahlandlela yamanani ekufuneni ukusebenza kwemihlahlandlela yeziqondiso zomhlaba wonke ngokwezidingo zaseZimbabwe kusize ekwembuleni izinkinga zesikhathi esizayo emazingeni omhlaba ngokuhambisana namazinga ezindinganiso zomhlaba jikelele ngokuhambisana namazinga asekhaya. Lesi sifundo siphendula igebe lolwazi elimayelana nokwedluliselwa kwesimo sokubekwa kwenani lemali kwezezintengiselwano eZimbabwe ngokusetshenziswa kokubhekwa komqondo onezigaba ezintathu ongaphansi kwesilanganiso sokuhlola, okungumthetho, ukwenziwa kwakhona kanye nokuxhashazwa kwemiqondo. Lolu cwaningo luphikisana nokuthi lomqondo ongunxantathu yinto ebhekwe ngamehlo abomvu futhi ebalulekile ekuqondeni ukudluliselwa kokubekwa kwesimo sezemali njengethuluzi lokugwema ukukhokhwa kwentela, okusho ukuthi amazinga omhlaba awasiyo into efanayo nokuthi izwe ngalinye linesimo salo esingafanani nelinye okwenza ukuthi isimo ngasinye sibhekwe ngokwesimo sezinga lasekhaya. / Financial Accounting / D. Phil. (Accounting Sciences)