Transfer pricing developments in Africa: what key points to keep in mind?

Tax e-Alert

The control of transfer pricing and the efforts to curb international tax base erosion have taken on major importance in recent years for local tax authorities. The OECD, in the frame of the BEPS project, has made some recommendations (so-called minimum standards) enabling local tax authorities to address BEPS issues. Such recommendations include strengthening transfer pricing documentation requirements.

In this respect, as transfer pricing matters have become an increasing area of focus of African tax authorities in recent years, many African countries have significantly developed their transfer pricing framework. Where cross-border transactions used to be considered by African tax lawmakers only through the lens of withholding taxes and general corporate tax rules, new sets of regulations based on transfer pricing principles are now emerging.

While some African countries are yet to implement transfer pricing documentation rules aligned with international standards, most of them have already developed tax reporting requirements to ensure that multinational enterprises (“MNEs”) disclose key information in relation to their intercompany relations.

However, many countries (including Cameroon, Ghana, Morocco, Nigeria, Senegal, South Africa, and Tunisia) have already gone a step further, introducing full-blown transfer pricing documentation requirements for MNEs. In this regard, with the 2022 Finance Bill, Kenya introduced an obligation, as from July 1, 2022, for Kenyan-based MNEs, which must now file on an annual basis a Master File and a Local File. In the same way, Ivory Coast has just introduced, through the 2023 Finance Act, a transfer pricing documentation obligation (in line with the OECD recommendations) for companies established in Ivory Coast and registered either at the Direction for Large Enterprises or at the Direction for Medium Enterprises. Hence, in the event of a tax audit, these Ivorian companies must now keep on pain of penalties a Master File and a Local File at the disposal of the Ivorian tax authorities.

The tax authorities of countries, which have already implemented a local transfer pricing framework, have also refined their transfer pricing audit capabilities. Now, they systematically request detailed information from taxpayers, both to validate the functional analysis and the relevance of transfer pricing method selection. Clearly, MNEs should now be prepared to face increasing demand for greater transparency from African tax authorities.

In many cases, taxpayers only have a few days, after the local tax authorities’ request, to provide compliant and comprehensive transfer pricing documentation (in countries where said documentation is not to be filed with the tax returns). Non-compliance may result in steep penalties, as in Nigeria or Morocco for example:

  • Ivory Coast - MNEs benefit from a delay of 30 days, after a formal notice, to produce a complete transfer pricing documentation to the tax authorities. Non-compliance may result in a fine equal to 0.5% of the amount of the transactions with missing or incomplete information. The fine has a minimum amount of XOF 10,000,000 ~ €15,000[1].
  • Morocco - MNEs must provide their transfer pricing documentation within 30 days upon request by the local tax authorities in the case of a tax audit. Non-compliance may result in a fine of 0.5% of the amount of transactions with missing or incomplete information. The fine has a minimum amount of MAD200 k ~ €18,000[2] per fiscal year.
  • Nigeria - MNEs must submit their transfer pricing documentation within 21 days upon request by the local tax authorities. Non-compliance may result in a fine, per fiscal year, of 10 million naira ~ €20,000[3] or 1% of the total value of all controlled transactions, whichever is higher.

To meet this increasing demand for transparency and ease discussions with local tax authorities during transfer pricing tax audits, MNEs should ensure that their transfer pricing policies are substantiated and generally in line with international standards. To do so, MNEs should define a coordinated central approach to evaluate their global transfer pricing policy and ensure its compliance with local and international standards. Potential areas which may lead to debates should be carefully examined and documented (and potentially adjusted before any tax audit).

In this context, it is of a paramount importance to anticipate upstream preparatory work, as the deadlines for complying with transfer pricing obligations are quite tight in many countries. To do so, MNEs should ensure that:

  • facts and circumstances are reported consistently across countries, and where applicable, that similar patterns led to similar conclusions with respect to both the functional-risk profile of entities and the transfer pricing methods applied;
  • consistent financial data (e.g., detailed cost base and allocation keys for the recharge of centralized functions, segmented P&Ls - especially in the situations where a local entity is involved in many activities remunerated separately) can be made available in case of tax audit, in order to substantiate the effective application of the centrally determined transfer pricing policy as well as the arm’s length nature of local entities’ results.

In a nutshell, in order to effectively substantiate their transfer pricing policies, MNEs will have to go beyond a mere description of the transfer pricing principles: they should start putting emphasis on building and collecting data used in the transfer pricing.

[1] Estimated at the time of writing this article

[2] Idem

[3] Ibid


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Hereil  Lontsi

Hereil Lontsi

Directeur, Prix de transfert, PwC Société d'Avocats

Florent Richard

Florent Richard

Avocat, Associé, PwC Société d'Avocats