Sources at the Ministry of Finance confirmed that two multi-million dollar companies have been engaged in the practice of transfer pricing. These companies are Banks DIH Ltd. and Demerara Distillers Limited (DDL).
But they aren’t the only companies employing the tax evading mechanism. Other entities in the manufacturing sector have been engaged in this behavior for more than 20 years.
During an exclusive interview with The Guyana Standard, Commissioner General of the Guyana Revenue Authority (GRA), Godfrey Statia was challenged to say if he is looking into the financials of the two companies as it relates to transfer pricing.
Statia said, “I am not at liberty to discuss the tax information of specific companies. However, I can say that there are several companies in Guyana that are involved in this practice; not just one or two companies as your information suggests.”
While the Tax Chief refused to confirm or deny the information put to him, he was open to explaining the nature of transfer pricing and how it has manifested itself in the local manufacturing sector.
The Commissioner General explained that a transfer price is the price at which divisions of a company transact with each other, such as the trade of supplies or labor between departments. Transfer prices are used when individual entities of a larger multi-entity firm are treated and measured as separately run entities.
Transfer pricing is basically used to pad a company’s expense.
Statia said that when transfer pricing is employed, a company can claim millions of dollars in refunds or even make a case for tax write-offs that it is not entitled to.
The Tax Chief said that while transfer pricing is practiced by most businesses in various sectors, the most prone to this behavior has been the manufacturing sector. In fact, Statia revealed that the manufacturing sector’s engagement in this notorious exercise involves billions of dollars.
The Commissioner General said, “Transfer pricing can occur in different ways… But the trend we have found in Guyana, and in the manufacturing sector at that, is where the Director is at one company and trades with another company that he owns. There are more than 10 companies in the manufacturing sector engaged in this. These companies are in the Large Taxpayers Unit; this is billions of dollars we are talking about here.”
GRA’s Commissioner General was also asked if he has any intention to implement the rules and recommendations of the Tax Reform Commission (TRC) as it relates to transfer pricing. Statia, who was an instrumental member on the Commission, reminded that the report of the TRC is still under review.
He said, “The Income Tax Act contains a number of measures aimed at avoiding transfer pricing but so far as we are aware, these have not been utilized. This needs to be done both in respect of cross-border transactions as well as domestic transactions. The report from the Commission speaks to this and GRA has already taken the steps to address it. I can assure you of that.”