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Status of transfer pricing in Africa: Part I
A number of regional and international developments have contributed to the current emphasis on transfer pricing by African tax authorities. In this two-part series Taxand South Africa takes a look at the transfer pricing situation in Africa.
There are a number of challenges for transfer pricing regimes in Africa. Such as a lack of local comparable transactions and a dearth of specialist knowledge and resources, including economists, auditors and lawyers experienced in transfer pricing as well as financial databases used in transfer pricing analyses. Another specific concern for African countries is that value attributable to intellectual property may skew more taxable income to developed countries at the expense of developing countries.
A 2011 report on transfer pricing in developing countries concluded that stable transfer pricing regimes have the potential to increase much needed foreign tax revenues and attract foreign direct investment on the basis that jurisdictions with comprehensive transfer pricing regulations present less tax risk and more certainty and legitimacy than countries without such regimes.
Concerned that the OECD Guidelines are designed primarily to protect the interests of OECD-member countries, the United Nations published its Practical Manual on Transfer Pricing for Developing Countries, endorsing the arm’s length standard in May 2013.
Although no African country is currently a member of the OECD, the BEPS Action Plan is bound to provide further support for many African tax authorities’ long-standing contention that they are not receiving their fair share of profits earned by multi-national corporations from operations in their jurisdictions.
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Transfer pricing has been recognised as a critical issue and a Transfer Pricing Project was approved in 2010 with the purpose of building the capacity of African Tax Administration Forum (ATAF) members to identify and address transfer pricing and thin capitalisation risk areas.