Tariffs trigger tax scrutiny

TRADE: AFRICA'S RESPONSE TO GLOBAL SHOCKS

- Amanda Visser

Global crises - such as the 2008 financial crisis, the Covid pandemic, and the recent international trade tensions created by US President Donald Trump - generally result in renewed focus on tax collection, particularly from multinational companies.

Tax authorities will take a closer look at companies' transfer pricing policies and whether prices are being adjusted because of outside shocks, or whether the tariff increases are a convenient opportunity to shift profits to head office countries, warns Michael Hewson, director at Graphene Economics.

Transfer pricing is the price set when different parts of the same company, like its branches or subsidiaries, buy and sell things from each other - whether it is products, services, or ideas.

Its policies influence how much tax a company pays in the countries where it operates.

Reduced prices

Hewson says companies may react to the punitive tariffs introduced by the US by reducing the price of goods they export to the US to remain competitive. However, if they do not make price adjustments to respond to the increased tariffs, they risk losing market share.

This, says Hewson, may attract the attention of revenue authorities.