The African tax landscape faces multiple challenges in tax implementation and compliance, particularly in Transfer Pricing. Conversely, 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 the Country-by-Country reports (CbCR), aligned with the OECD (Organization for Economic Cooperation and Development) guidelines.
Progress on the APAs Implementation
APAs are agreements between taxpayers and tax administrations that establish, in advance, the criteria for pricing related party transactions, mainly 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 implementing APAs in their tax frameworks. Conversely, practical experience in negotiating and formalizing these agreements remains limited due to challenges such as a lack of technical expertise, complexity of the process, and information asymmetry between taxpayers and tax authorities.
Strengthening Tax Transparency Through Country-by-Country Reports
Implementing the Country-by-Country Reporting (CbCR) has become essential for improving tax transparency and fighting Base Erosion and Profit Shifting (BEPS). In this context, Kenya, through the Kenya Revenue Authority (KRA), has implemented documentation requirements at three levels: Country-by-Country reporting, Master File, and Local File, for multinational groups with consolidated revenues exceeding 95 billion Kenyan shillings.
Through this, the KRA can obtain a comprehensive and, in turn, detailed view of multinationals’ transactions, facilitating the identification of tax risks and enhancing international cooperation through the automatic information exchange.
Persistent Challenges and Enhancement Opportunities
Despite these advances, significant challenges remain in implementing the Transfer Pricing regulations effectively in Africa. Lack of specialized training, 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 interpretation of the OECD guidelines can create uncertainty and increase possible tax disputes.
In this context, the experience of countries that have successfully implemented APAs and CbCRs provides a reference for adapting solutions tailored to local economic and administrative realities, fostering a more stable and cooperative tax environment.
Conclusion
Strengthening the Transfer Pricing certainty mechanisms and enhancing international tax cooperation are crucial to attract investment and promote economic development in Africa. Effective implementation of APAs and CbCRs, along with capacity building of tax authorities and harmonization of regulations, will contribute to a more predictable and fairer tax environment for multinational companies operating in the region.
TPC Group Advice
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Source: Business Daily Africa