The African tax landscape faces multiple challenges in the implementation and enforcement of tax regulations, particularly in the area of transfer pricing. However, there is a significant shift towards greater tax certainty and international cooperation, driven by the adoption of modern tools aligned with global standards, such as Advance Pricing Agreements (APAs) and the implementation of Country by Country Reports (CbCRs), aligned with the guidelines of the Organization for Economic Cooperation and Development (OECD).
Progress in the Implementation of Advance Pricing Agreements (APAs)
APAs are agreements between taxpayers and tax administrations that establish, in advance, the criteria for determining prices in transactions between related parties. Their main objective is to provide tax certainty and reduce the risk of transfer pricing disputes.
In Africa, countries such as Tanzania (2018), Zambia (2020), and Uganda (2021) have introduced legal provisions for the implementation of APAs in their tax frameworks. However, practical experience in negotiating and formalizing these agreements remains limited due to challenges such as lack of technical expertise, the complexity of the process, and information asymmetry between taxpayers and tax authorities.
Strengthening Tax Transparency through Country by Country Reporting
The implementation of country-by-country reporting (CbCR) has become a key tool for improving tax transparency and combating base erosion and profit shifting (BEPS). In this context, Kenya, through the Kenya Revenue Authority (KRA), has implemented three-tier documentation requirements: country-by-country reporting, master file, and local file, for multinational groups with consolidated revenues exceeding 95 billion Kenyan shillings.
This measure allows the KRA to obtain a comprehensive and detailed view of the operations of multinationals, facilitating the identification of tax risks and improving international cooperation through the automatic exchange of information.
Persistent Challenges and Opportunities for Improvement
Despite these advances, significant challenges remain in the effective implementation of transfer pricing regulations in Africa. The lack of specialized training, the limited availability of comparable data, and the complexity of global value chains hinder the application of the arm’s length principle. In addition, differences in local regulations and the interpretation of OECD guidelines can create uncertainty and increase the risk of tax disputes.
In this context, the experience of countries that have successfully implemented APAs and CbCRs serves as a reference for adapting solutions tailored to local economic and administrative realities, fostering a more stable and cooperative tax environment.
Conclusion
Strengthening transfer pricing certainty mechanisms and improving international tax cooperation are essential steps to attract investment and promote economic development in Africa. The effective implementation of APAs and CbCRs, together with the training of tax authorities and the harmonization of regulations, will contribute to creating a more predictable and equitable tax environment for multinational companies operating in the region.
How can TPC Group help?
At TPC Group, we have a team of experts in Transfer Pricing and International Taxation who can advise you on business restructuring processes, ensuring regulatory compliance and optimizing your tax position. Contact us for a personalized consultation.
Source: Business Daily Africa