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he resur­gent in­ter­est in trans­fer pric­ing abuse by multi­na­tion­als might be miss­ing the first “link in the chain” – the shift­ing of prof­its in­side South Africa to the detri­ment of em­pow­er­ment part­ners, work­ers, com­mu­ni­ties and the econ­omy. This is the emerg­ing line from a prom­i­nent think-tank, the SA Min­ing Devel­op­ment As­so­ci­a­tion and one that is sup­ported by the depart­ment of trade and in­dus­try and oth­ers.

The Al­ter­na­tive In­for­ma­tion and Devel­op­ment Cen­tre (AIDC), a union-friendly think-tank, this past week re­leased a new re­port on plat­inum pro­ducer Lon­min and its al­leged ex­port of prof­its to dodge taxes (

The new re­port is a longer, up­dated ver­sion of the con­tentious “Ber­muda con­nec­tion” re­port the AIDC re­leased last year.

It is based on the fi­nan­cial ev­i­dence sub­mit­ted to the Marikana Com­mis­sion of In­quiry.

By now, the dis­clo­sure of the fi­nan­cial state­ments of Lon­min sub­sidiaries and var­i­ous other doc­u­ments has made the com­pany pos­si­bly the most closely scru­ti­nised one in South Africa.

AIDC lead re­searcher Dick Forslund’s up­dated re­port still ac­cuses Lon­min of mov­ing an av­er­age R400 mil­lion a year out of its op­er­at­ing sub­sidiaries in South Africa through two “profit shift­ing” agree­ments.

One is a man­age­ment fee paid to Lon­min’s Lon­don head­quar­ters and the other is a mar­ket­ing fee paid to a sub­sidiary in Ber­muda.

This week Lon­min an­swered with a terse state­ment say­ing it “notes with dis­ap­point­ment the re­port re­leased ... which con­tains un­founded and false al­le­ga­tions about the com­pany”.

The com­pany says it pays all its taxes prop­erly and “hopes that AIDC stops mak­ing th­ese base­less al­le­ga­tions”.

The up­dated re­port also de­vel­ops a new line of think­ing about where the resur­gent trans­fer pric­ing de­bate should be head­ing.

“Profit shift­ing starts at the do­mes­tic level and should be stud­ied from the point of view of stake­hold­ers in sub­sidiaries,” says the AIDC.

Th­ese in­clude the BEE part­ners, work­ers and com­mu­ni­ties that are of­ten for­mally en­ti­tled to some stake in a mine due to South Africa’s Min­ing Char­ter.

Forslund coined the term “wage eva­sion” to ac­com­pany the more familiar “tax eva­sion” to de­scribe the al­leged prac­tice of plead­ing poverty at its mines in wage talks af­ter re­mov­ing sig­nif­i­cant re­sources that could “eas­ily” have paid for higher wages

Trans­fer pric­ing is rapidly en­ter­ing the po­lit­i­cal lex­i­con with the Davis Tax Com­mit­tee in­ves­ti­ga­tion, the wider con­cept of tax “base ero­sion” and Par­lia­ment’s re­cent host­ing of a num­ber of hear­ings on the is­sue.

The Davis com­mit­tee re­leased a first re­port on “base ero­sion and profit shift­ing” in De­cem­ber and was so over­whelmed by com­ments that it sent out a new re­quest for sub­mis­sions on the is­sue two weeks ago.

The AIDC re­cently made a sub­mis­sion to the Davis com­mit­tee ar­gu­ing for a greater scru­tiny of do­mes­tic trans­fers.

“It is ac­tu­ally mis­lead­ing to di­rect all at­ten­tion to cross-bor­der trans­fer pric­ing,” said the AIDC.

“Trans­fer pric­ing, profit shift­ing and the de­ple­tion of funds to sup­port wages, fi­nance in­vest­ments and pay mi­nor­ity share­holder div­i­dends start do­mes­ti­cally.”

In its sub­mis­sion it also re­vealed new re­search into To­tal Coal SA, which it says il­lus­trates the point.

Ac­cord­ing to the AIDC, To­tal’s BEE part­ner Mmakau Min­ing is sub­ject to two lay­ers of mar­ket­ing fees – a 4% one paid to the multi­na­tional’s lo­cal hold­ing com­pany and a 7% one paid by it to an­other Lon­don-based To­tal com­pany,

With­out dig­ging deeper, AIDC ques­tions whether th­e­ses fees make sense con­sid­er­ing that To­tal al­ready has ex­clu­sive rights to the coal from the mines it co-owns with Mmakau.

For­mer pres­i­dent Thabo Mbeki has taken on trans­fer pric­ing and other il­licit fi­nan­cial flows as his ma­jor le­gacy project af­ter he led a high-level African Union panel on the is­sue.

The term “trans­fer pric­ing” shot to promi­nence in the 1960s af­ter the de­coloni­sa­tion of much of the world and the rise of mostly West­ern, multi­na­tional cor­po­ra­tions.

The abuse of trans­fer pric­ing hasn’t been this high on the poor world’s agenda since the 1970s and 1980s.

This was when the ill-fated UN code on transna­tional cor­po­ra­tions was de­vel­oped.

It sketched a wide-rang­ing set of rules around how the rich world’s cor­po­ra­tions should treat the poor world – in­clud­ing a prohibition on abu­sive trans­fer pric­ing.

How­ever, from those early days, the Or­gan­i­sa­tion for Eco­nomic Co­op­er­a­tion and Devel­op­ment (OECD), which is mostly a club of de­vel­oped coun­tries, has been at the fore­front of guiding global pol­icy on this and other mat­ters around multi­na­tion­als.

PHOTO: SIMON DAW­SON / BLOOMBERG / GETTY IMAGES

STRIK­ING GOLD A mine worker stirs molten gold in a fur­nace be­fore cast­ing. Trans­fer pric­ing and profit shift­ing by multi­na­tion­als in­side and out­side SA com­pro­mises em­pow­er­ment part­ners, work­ers, com­mu­ni­ties and the coun­try’s econ­omy

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