By: Nghiinomenwa Erastus
Namibia has joined multilateral conventions to implement tax treaty-related measures to prevent base erosion and profit shifting.
The Organisation for Economic Co-operation and Development (OECD) announced last week.
Namibia signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting, becoming the 96th jurisdiction to join the convention.
Ambassador Albertus Aochamub signed the Convention for Namibia at a signing ceremony held in Paris.
The convention now covers around 1800 bilateral tax treaties.
Base erosion is the use of financial and tax planning to reduce the size of a company’s taxable profits in a country.
The convention is the world’s leading instrument for updating bilateral tax treaties and reducing opportunities for tax avoidance by multinational enterprises.
Measures included in the convention address treaty abuse, strategies to avoid the creation of a “permanent establishment”, and hybrid mismatch arrangements.
Despite the signature, Namibia is still married to Mauritius through its Double Tax Agreements, which various African countries are divorcing.
The announcement came when the Namibia Revenue Agency had set up its unit to cover transfer pricing matters.
In taxation and accounting, transfer pricing refers to the rules and methods for pricing transactions within and between enterprises under common ownership or control.
Many corporations/companies operating in Namibia are sister companies to others elsewhere and in different sectors – they tend to transact.
The agency has also announced that it has secured an expert to capacitate its internal team on transfer pricing matters.
However, the country has a transfer pricing legislation and has issued a policy note that is gathering dust.
The agency commissioner, Sam Shivute, acknowledged last week that abuse of transfer pricing loopholes is how countries like Namibia and the rest of Africa are losing tax revenue as corporations continue eroding the tax base, using accounting tricks and tax haven.
Shivute also updates the media that the country has only carried out three transferring price studies since independence.
The Villager has, however, did not get hold of the studies to know the country’s status in transfer pricing matters, as inter-company lending increases and related parties transact.
The commissioner has also vowed to strengthens its investigation units in tax matters.
Shivute has also updated that as part of the new managers they currently seek, one position is reserved for someone with expertise in transfer pricing matters.
Beyond transfer pricing issues, the country also has thin- capitalisation in specific sectors- with various reports blasting the country’s leverage ratio (equity debt).
According to the PWC explanation, Section 95A of the Income Tax Act deals with thin capitalisation.
It prescribes that the minister may, where financial assistance provided by a foreign connected person is excessive concerning a company’s fixed capital, disallow (for tax purposes) any interest or other charges payable by the Namibian person on the outsized portion of the financial assistance provided by the foreigner.
Shivute said the thin capitalisation issues are the main reason they are now members of the inclusive framework.
He added that thin capitalisation is also part of the tax audit being carried by the agency.
The government is currently facing one of its highest funding gaps of almost N$30 billion- pushing it to resort to the market to borrow and fund its budgetary promises.
At the same time, the country has about 43% of non-compliance and non-documented base erosion issues. Email: firstname.lastname@example.org