draining development.pdf - Khazar University

284 Draining Development?First, this would not happen if all corporations sought to be tax compliant(see above). While some corporations are risk averse, by no meansall are. 16 In this case, it is unlikely that all corporations are tax compliant.The likelihood of noncompliance is increased because of the limitedapplication of the OECD arm’s-length pricing rules, which are meant togovern transfer pricing in international trade (see above). For the purposesof this chapter, transfer mispricing is considered a breach of theserules. Because these rules usually only apply if legislation requires or if aDTA is in existence requiring the trade between two jurisdictions to bepriced in accordance with these principles, it is likely that transfer mispricingis commonplace.In EU and OECD countries, which have been used as the basis formuch of the published research on transfer mispricing, such DTAs usuallyexist, as do the resources to monitor the application of these agreements.As a result, it is now often said at tax conferences that mispricingin the trade in goods is rare or almost unknown, although the same isnot said of intangibles. Such comments, however, ignore the fact thatthis is a select sample base that gives little indication of the opportunityfor abuse in much of the world.For example, even a brief review shows clearly that DTAs are notableby their absence in Africa. While South Africa has an impressive range ofDTAs, other countries are in a different position. 17 Botswana has 10. 18Zambia has 17, but most are old, and none has been signed since 1989. 19The Democratic Republic of Congo has only two DTAs. 20 Angola is farfrom alone in having no DTAs. The lack of progress in developing newagreements implies that the resources devoted to monitoring the issueare limited in Africa.Especially since the G-20 summit in April 2009, DTAs have been supplementedby new tax information exchange agreements. These, however,are limited to information exchange issues, as their name implies,and not the regulation of transfer prices (in other words, they excludestandard article 9 of the OECD Model Tax Convention; see OECD 2003).Moreover, as research by Tax Research LLP and the Tax Justice Network(TJN) has shown, as of November 2009, Brazil, China, India, Japan, mostof Africa, and almost all developing countries were notable absenteesfrom the list of states that had signed tax information exchange agreementswith secrecy jurisdictions (Murphy 2009b). The implication is