The past few years for any transfer pricing (TP) professional in Africa (and indeed globally), have been a whirlwind. We have gone from a “nice to have” service offering to “must-have”… to a slightly panicked request from our clients to help them navigate time-consuming complex responses to detailed tax authority TP requests and onerous disputes.

So we are busy. But so too are you, not to mention the African tax authorities…

There is no getting away from compliance and best practices when it comes to transfer pricing. The rules are relatively clear, legislated, and simply put: the onus is on the taxpayer to discharge the burden of proof when it comes to transfer pricing matters. The first step is ensuring robust transfer pricing documentation is in place on time. Sounds simple, but the compliance burden across Africa is onerous and time-consuming for all involved.

TP disputes are beyond time-consuming.  Avoiding them should be a priority for any diligent tax function. The various African tax authorities hold very wide powers in terms of the nature and type of information they can legally request. In our experience an entire tax department can be consumed for years with a historic TP query or dispute, impacting their normal course of business, and impacting the commercial necessity of their function. So, what are the core problems we are facing and how can we bridge the gap?

Bridging the Technical Gap

Given TP legislation is at various levels of maturity across Africa, the tax authorities, internal tax functions, and indeed TP advisors across the continent display different levels of technical ability. This is totally normal when a spate of the new legislation is implemented, and the various stakeholders have not had time yet to invest sufficiently in their people. However, this means solid technical arguments can be incorrectly left by the wayside, and what is technically correct is often ignored. It is in the interest of all parties that this technical gap be filled asap so that sound technical arguments and support can be presented, supported, accepted, and moved on from.

We will be attending the SAIT Africa TP Summit in early November, this is a great forum where all key stakeholders (taxpayers, tax authorities, and tax practitioners) get together and expand their TP technical knowledge, and gain insights on the key trends in TP. As TP practitioners there is an onus on us to bridge the technical gap between the taxpayer and tax authorities to try to ease the compliance burden and get to a mutually agreeable solution.

Keith Engel, SAIT CEO, had the following to say on the matter this week:

“Transfer Pricing compliance has become an increasing operational challenge for in-house tax directors.  Not only is the nature of transfer pricing unique from other daily tax tasks, but it also requires a highly sophisticated level of expertise.  While most basic company compliance can often be handled internally, In-house tax directors need to outsource transfer pricing expertise as the first safeguard against unnecessary transfer pricing risk.”

At Regan van Rooy, we are actively embracing the challenge to work more seamlessly with the African tax authorities, with a view to making all our jobs easier. In-house training is also critical to identify and manage TP risks and we will be running a series of technical training sessions specifically designed for internal tax functions. Watch out for our free TP webinar in November “All you need to know about TP”.

Centralising our approach to TP – a consistent narrative

We have our TP local files, Master File, CbyC, AFS, tax returns, and legal agreements. The tax authorities use all these sources of information to determine a taxpayer’s TP audit risk. Centralising your TP compliance obligation to ensure your data ties up is key, together with providing a consistent narrative on how you operate in Africa /globally. Inconsistencies may arise because you have different TP advisors/in-house teams in various jurisdictions, and a holistic approach has not yet been taken. We strongly recommend TP risk be managed centrally both in-house and with your advisor to ensure a robust defense position for your region and Group as a whole.

If you are keen to improve your TP strategy and simplify your approach whilst minimising your risk, please contact us. Furthermore, if you have any burning questions for the African tax authorities you would like raised at the Africa TP summit, please share. We will happily take the proverbial bullet!

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How can we help?

How you structure your business is a critical question as you expand globally.  The right structure will protect your assets, improve your currency position, support your business operations, facilitate future business expansion and changes, and optimise your overall tax rate. Trying to unscramble a sub-optimal structure entered into in haste or without full consideration of relevant facts is complex and expensive, so it’s important to plan upfront.

Structuring an international business is both a science and an art – this is our specialist area of expertise. Regan van Rooy is an international tax and structuring advisory firm focussing on Africa. We have offices in South Africa, Mauritius and Ireland and we can help you with any international tax or structuring query.