The South African Revenue Services (SARS) has convened a forum of commissioners from bordering countries, including Swaziland, Lesotho, Zambia, Botswana, Namibia and South Africa, to deliberate on core tax and customs issues, and focus areas linked to illicit financial flows, base erosion and profit sharing, transfer pricing and cross-border enforcement.
This is in order to chart a road map and maximise the respective participating countries’ statutory mandates of revenue collection.
Recently the International Monetary Fund (IMF) released a working paper, saying that the “the cost of multi-national companies deliberately avoiding tax exceeds $200-billion per year”, while the Organisation for Economic Capacity and Development (OECD) stated that developing countries lose three times more to tax havens than what is received in international aid per year.
The Global Financial Integrity Report furthermore provides that “outright tax dodging is an even bigger problem, with undeclared money transfers, false invoices and the like, costing developing countries more than $990-billion in 2012”. The African Union report on illicit financial flows adds that $60-billion is annually tapped from the continent.
In addition, the G20/OECD announced a two-year project on base erosion and profit shifting to change existing international tax standards with the aim of ensuring that profits are taxed where economic activities occur and where value is created.
It is against the above backdrop of abusive tax practices, that SARS convened the forum, with Commissioner, Tom Moyane, calling for “collective cross-border strategies to respond to the challenges, which can lead to a continental discussion under the African Tax and Administration Forum (ATAF)”.
In his opening remarks, SARS Commissioner Tom Moyane provided context to the meeting, saying, “Exports out of developing countries are often under-invoiced so that income is accrued abroad, and imports into developing countries are often under-invoiced, so that the excess payment accumulates in foreign accounts.”
Moyane acknowledged the increase in automatic exchange of tax information and posed the question on how this can be leveraged.
The deliberations of the forum culminated in a joint statement of in-principle agreements and actions.
* We note the negative impact illicit financial flows have on our statutory mandate and agree that we need closer cooperation to deal with this matter as it relates to tax and customs.
* We note the OECD proposal on Country by Country (CbC) reporting and pertinently the G20/OECD BEPS project. We further note that the threshold for CbC reporting may be too high for multinational enterprises headquartered in the sub-region. We agree to explore the possibility of a lower threshold for these enterprises in our sub-region.
* We agree to share information on aggressive tax and duty schemes employed domestically and sub-regionally in accordance with existing bilateral/multilateral treaty provisions.
* We agree to work together to counter direct and indirect tax fraud, with the initial focus on VAT and Customs duties as well as to deal with the effects of the growing digital economy.
* We note the global developments in tax matters especially the negotiations on norms and standards seeking to make international tax more equitable and conclude that as tax authorities we must adopt the necessary measures to counter-act base erosion and mitigate the negative effects of profit shifting.
* We resolve to work together to root out all forms of corruption.
* We note with concern the challenges posed by harmful practices aimed at circumventing domestic legislation, such as VAT fraud, smuggling, round-tripping of tobacco, undervaluation of textile and clothing and all other related crimes. In this regard and taking full advantage of the legal instruments at our disposal we conclude to work much closer, share information and act jointly to ensure increased compliance. We will make it as easy as possible for those that are willing to comply with the spirit of the law and vow to combine our efforts to root out acts of non-compliance.
* We agree on the need to improve our legal enabling frameworks to support collaborative initiatives.
* We endorse the inter-connectivity programmes currently being piloted in the sub-region and agree that these be broadened. We agree to establish a regional database to support a risk-based approach through an integrated risk platform.
* We note with satisfaction efforts undertaken globally to encourage greater transparency and the exchange of tax and customs information. We agreed to increase our resources and capabilities for exchange of information units/Competent Authorities in order to enhance our ability to share information faster and more efficiently. We stand ready to actively assist one another in building the necessary capacity, and agree that the establishment of a regional customs academy be explored further.
* We underline the importance of treaty networking and commit to influencing our countries to accede to international treaties such as the African Tax Administration Forum (ATAF) Agreement on Mutual Assistance in Tax Matters (AMATM).
* We agree on the usefulness of this type of exchange of views amongst ourselves as we face similar challenges in our sub-region. We propose that this meeting should be a precursor to formalizing a Commissioners General Forum to discuss tax and customs matters in the region.
* We note the offer by South Africa to host a meeting on Transfer Pricing for technical experts from the region as well as to share with countries its Tax Gap methodology.
* We note the offer by South Africa to share experiences on detector dog training as a means to enhance border protection and improve the detection of undeclared and illicit goods.
* We recognise that strong governance, leadership and oversight is required and to this end we commit to give effect to the resolutions contained herein.
* We request South Africa to convene the next meeting of Commissioners General by the end of October 2015.