Arcotia Hatsidimitris - International Tax Dialogue

8. TRANSFER PRICING AND DEVELOPING COUNTRIES – 73
Improving access to commercial information and comparables in developing countries
The identification of comparables can create particular difficulties for developing countries wanting to
undertake effective transfer pricing audits or enquiries. Some have access to business and commercial
databases for use in transfer pricing enquiries but there is often a lack of financial data in their own
countries that would be of use in determining arm’s length prices for independent companies. This can
force tax administrations to use non-domestic comparables and in some cases to make company specific
adjustments for the difference between the domestic market and the foreign market. This can add real
complexity and cost as well as proving very time-consuming. ATAF is looking at the feasibility of
purchasing rights to use a commercial database for collective use by its members and at the possibility of
ATAF members developing their own databases.
The availability of financial data in a country is greatly improved if there is a reporting system that
encourages financial transparency in the corporate sector. This can be achieved by having in place a
legislative framework that imposes a requirement on companies, including private companies, to file
accounts and for those accounts to be publically available. This sort of requirement can be found in the
company law systems of many countries. There are very good non-tax reasons for doing this, as it helps to
improve the transparency of markets and so helps them to be more efficient. It helps to create the climate in
which third party investors can make informed decisions about which corporations to lend to, or directly
invest in. In the absence of this kind of transparency, investors and enterprises are much more likely to
have to rely on personal and family connections when making financial decisions.
The requirement to file accounts does impose a compliance burden on the companies affected but
enterprises of any scale will need to have accounting systems in place in order to run their businesses. It is
already a legal requirement in many OECD countries. Smaller companies can be subject to less stringent
requirements than large companies and the local subsidiaries of MNEs, which prevents the system placing
undue burdens on the SME sector. The legislative framework should also specify the accounting standards
that companies should comply with, which could be local GAAP or the International Accounting
Standards. A project is currently underway, led by the OECD’s multistakeholder Informal Task Force on
Tax and Development, to establish good practices for transparency in the availability of company accounts,
and to assist countries in putting in place rules to enable the public availability of relevant data. This is an
area where the FTA could work closely with the Task Force to develop an integrated solution.
The development of a legal framework for financial reporting in the corporate sector is an important
first step but it needs to be backed up by an administrative mechanism for receiving the accounts of
corporations and making them available for public scrutiny. In the current era that system needs to be
electronic, as this is the simplest way to receive the information and the Internet is the easiest way to make
the data publically available. But for many developing countries it will be hard to fund any significant
capital investment in this sort of IT system and it may not represent the highest priority when funds are
scarce. Fortunately, developments in the market place, particularly in the provision of computing capacity
as a service, often referred to as cloud computing 2 , suggest that it should be possible to establish an
electronic system for receiving and accessing company accounts relatively easily and at low cost. The
diagram below illustrates how this might be done.
DEALING EFFECTIVELY WITH THE CHALLENGES OF TRANSFER PRICING © OECD 2012