From The Namibian: an open letter to De Beers on transfer pricing



AS NAMIBIAN political activists, we are writing to you because we are greatly concerned about your transfer-pricing methods. We know that transfer-pricing occurs when two companies from the same multinational corporation trade with each other.
This is probably the most important issue as far as international taxation is concerned, since transfer-pricing is used for tax avoidance. In fact, it is the main way in which big corporations like De Beers shift profits out of a country into tax havens. The corporations simply misprice the goods that they are exporting.
In the early 1970s already, an estimated 30-40% of the profits of the multinational corporations originated from transfer-pricing. If it is considered that today around 60-70% of global trade is about the same multinationals trading within themselves, then the profits from transfer-pricing must be huge.
A report entitled ‘Rough and polished: a case study of the diamond pricing and valuation system’ was released on 14 May 2014 by Sarah Bracking and Khadija Sharife of the University of Manchester. The study investigated the contribution of diamond mining to the economic development of South Africa. The research concluded:
Since De Beers easily crosses borders and also owns the diamond industry in Namibia, we should ask: does this significant transfer-pricing also apply to Namibia, given the underdeveloped nature of the regulatory systems in this country? Does this mispricing also exist in the uranium, gold and copper mines of Namibia? The publication from the University of Manchester makes it clear that no transparency exists in De Beers and that it is therefore difficult to evaluate the exact scale of the transfer-pricing.
In fact, the Alternative Information and Development Centre (AIDC) in South Africa also just a few days ago revealed that they have found that Lonmin, one of the big platinum companies, has been underselling platinum for many years to the tune of billions of rands. A University of the Witwatersrand research group, Research on Money and Finance, confirmed in yet another fresh report that massive profits accrue to shareholders in the platinum industry there and that these profits flow out of the continent. Needless to say, this transfer-pricing is obviously also taking place in Namibia and robs the people of the means to build a decent life for all.
The Wits research group proposed a heavy resource rent tax, while the Tax Justice Network has suggested that a unitary taxation approach should rather be pursued with these corporations, i.e. that all the various companies of the multinational should be taxed by all relevant countries that could then work out a formula to share the revenue equitably.
So, would De Beers be willing to open up their books for inspection by independent evaluators appointed by the Namibian people? Could we perhaps invite the AIDC or the Wits research units to come to Namibia to inspect the books of De Beers? Perhaps if we did not have transfer-pricing then the recent retrenchments at Rössing Uranium (also an Anglo-American company) would not have taken place? This mispricing of the country’s mineral wealth results in the exporting of the resources that could be used for jobs, for free water and electricity, decent houses, schools and clinics, etc. The Namibian people should call meetings all over the country and discuss this daylight robbery of the mineral wealth by the corporations. We should demand that the corporations not only stop the transfer-pricing, but should also be drastically taxed and should return the wealth that was illegally taken out of the country over the decades.
After all, the wealth belongs to all the people and not only the greedy few.
We eagerly await a response from the De Beers Company in Namibia or perhaps its parent company, the Anglo-American Corporation, which is jointly owned by JP Morgan Chase.
R Negongo and
R Kozonguizi

You can access the original here.

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