There is no evidence of transfer pricing as it relates to logs being exported from here to China, the Guyana Forestry Commission (GFC) has said.
There have been accusations in prior years that transfer pricing is occurring but former Auditor-General Anand Goolsarran in his forensic audit report of the GFC noted that when the logs are shipped to the destination countries, the final cost takes into account costs relating to insurance and freight as well as other costs for transporting the logs to locations within the countries where they are sold.
In addition, the company exporting the logs will have to apply its own mark-up in order to derive a profit. Therefore, the final price of the logs (whether by way of transfer pricing or otherwise) would be significantly higher than the Free on Board (FOB) invoice price on which the export commission is calculated. “It is not an indication of under-invoicing and hence loss of revenue,” Goolsarran said.
According to Transparency Institute Guyana Inc, transfer pricing means that when logs are exported from Guyana, their value is declared at a very low level and far below the price that they command on the world market. When these same logs are valued in China at the time of import, their declared value rises to a much higher level that exceeds the CIF (cost, insurance and freight) value.
In its response to Goolsarran’s report, the GFC said that it has been following closely the issue of possible transfer pricing and/or under-invoicing of timber products, particularly logs to China.
The GFC said that directly attempting to establish links to management and ownership, falls outside of the jurisdiction of the GFC – especially since importing companies of Guyana’s logs in China have no obligation to disclose to the GFC its shareholding, ownership and control documents and management structure. As a result, the GFC has taken a two-phased methodology for the investigation namely the analysis of Guyana’s current log export prices relative to current international tropical log export prices and a specific analysis of the actual prices reflected in the ports in China for Guyana’s log species.
From the analysis, the GFC said, there is no evidence of transfer pricing. “Data from the Chinese authorities, shipping information from companies that ship to China (from Guyana), together with GFC export prices (FOB), shows that CIF price for Guyana’s logs fall within/or in close proximity with the declared price by the Chinese authorities,” the Commission said.
It said the GFC has noted that certain recent analysis has attempted to incorrectly compare FOB export prices with CIF import prices of Guyana’s logs in China. Further, there has been an attempt to use wholesalers’ price as though it were the FOB or CIF price. For example, the main source used in the local media to claim transfer pricing (based on the recent Volume 19 of the ITTO MIS Report), is taken from: Guangzhou Yuzhu International Timber Market Wholesale Prices (Page 15 of Report), the GFC noted.
“Information for the Chinese authorities shows that wholesaler markup on the CIF prices include Chinese taxes ranging from 13-20% based on size and type of product; additionally, there is a separate mark up for the product being sold on to buyers. This is typical of any wholesaler market in China and elsewhere,” the GFC said.
It also pointed out that the price of logs in the export market are determined by species and diameter sizes. “The size range of most of Guyana’s species to China falls in the range below 50cm diameter at breast height (dbh). Comparing the prices of these small-medium diameter logs with logs that are in higher diameter ranges will lead to an incorrect comparison; it will also erroneously show a price disparity when in reality this does not exist,” the commission asserted.
It also noted that the ITTO in its Market Information Report Vol. 19 No. 11 for the period June 1 to 15, 2015 expresses validation of the GFC’s conclusions and analysis.
