International organisations consider transfer pricing a development financing issue, because without adequate tax revenues, a country’s ability to mobilise domestic resources for development might be hampered. As a result, scrutiny of MNCs’ tax footprints in Africa has increased recently.
Over the past few years, much debate about the most appropriate transfer pricing regime for developing countries has taken place. Some consider implementation of the arm’s length standard (ALS) – the central feature of the transfer pricing regimes of most developed nations as well as the OECD Transfer Pricing Guidelines (OECD Guidelines) – prohibitively resource-intensive and costly for developing countries.
Several African nations – most notably Kenya, Egypt, Morocco and South Africa – have broad transfer pricing regimes based on the ALS, while several other African countries – such as Uganda – recently passed legislation adopting transfer pricing regulations based on the ALS.7 Still other African nations that do not have comprehensive transfer pricing regimes – such as the Democratic Republic of Congo and Mozambique – have provisions in their tax code that reference the ALS.
As Africa continues to grow and become more integrated into the global economy, it is anticipated that more African nations will adopt transfer pricing regulations based on the ALS. Although transfer pricing regimes in Africa are expected to be based on the OECD Guidelines and the UN Practical Manual, African governments’ desire to protect revenues from natural resources will probably influence future transfer pricing legislation. In addition, African nations that have already adopted the ALS will likely move towards legislation that will allow for more Advance Pricing Agreements (APAs), tax treaties, and safe harbors as these nations seek to increase domestic tax revenue and make their countries more attractive to MNCs.