Many African countries are cracking down on adherence to Transfer Pricing Regulations and issuing more rules to show they mean business. Today, we look at some new developments in the Transfer Pricing (“TP”) world in Ethiopia, Uganda and, who’d have thought, the Seychelles.
What’s cooking in Ethiopia?
Amazingly, TP regulations were first introduced in Ethiopia almost two decades ago and almost a decade has passed since the first directive was issued. However, as of 2023, no TP audits had been successfully completed. Then suddenly, in January 2024, the Ethiopian Ministry of Finance issued directive number 981/2024 and the previous TP Rules Directive 231/2021 was repealed. In short, the directive is a revision of the existing transfer pricing directive with a new regulation that ensures that the provisions are followed this time around. So things seem to be finally happening in Ethiopia TP-wise.
The scope of Ethiopia’s TP rules applies to international and domestic transactions between related persons who have an annual turnover that exceeds ETB500 000, i.e. a measly USD 9k in real money.
An important element of this directive is the guidance on TP documentation. Related persons must demonstrate that transactions have been conducted at arm’s length by preparing a local file. The directive has listed the approved methods, in line with the OECD’s Transfer Pricing Guidelines. Taxpayers may, however, choose to use alternative methods if they can demonstrate that none of the approved methods can be applied. The rules require contemporaneous documentation which must be in place on the tax return filing date.
A taxpayer who fails to maintain the required TP documents may be liable to a penalty of up to 20% of the tax payable for the relevant tax period. If no tax is payable, the penalty shall be Birr2 000 for each tax period the taxpayer fails to maintain documents.
What’s cooking in Seychelles?
TP Legislation is not entirely new to Seychelles, having been included in the Business Tax Act since 2009. Previously, it was an anti-avoidance provision made to ensure that the outcomes of transactions between related parties were at arm’s length.
The 2022 Amendment, which became effective in January 2023, provided more in-depth regulations and extended the scope of applicability. It also prohibited commercial and financial transactions that result in a TP benefit. The legislation in Seychelles is broadly aligned with the OECD TP Regulations when it comes to the methods the Commissioner General may use to determine whether the arm’s length principle has been adhered to. As of 1 January 2024, new TP documentation and Related Party Dealings Schedule requirements issued by the Seychelles Revenue Commission (“SRC”) have taken effect.
According to the Business Tax Act (Transfer Pricing Documentation) Regulations 2023, a person who has an annual turnover of SCR 1 million (approximately USD75k in real money) and enters into controlled arrangements, i.e. transactions with connected parties, must prepare TP documentation to verify that the controlled arrangement is consistent with the arm’s length principle.
A Master File is required for taxpayers that form part of an MNE and have a consolidated turnover that is greater than EUR100 million. Additionally, if a taxpayer’s total value of controlled transactions exceeds 10% of the turnover, or SCR 50 million (approximately USD3,7 million) in a tax year, a local file is required. This documentation must be submitted within 21 days if requested by the Commissioner General and must be kept and maintained for at least seven years. Per the Business Tax Act (Related Party Dealings) Regulations 2023, any person who enters controlled arrangements must complete and furnish a Related Party Dealings Schedule which will form part of the tax return and must be kept and maintained for at least seven years. Failure to complete the Related Party Dealings Schedule will attract a penalty of SCR5 000. Failure to submit TP Documentation and the Related Party Dealings Schedule will result in a penalty of SCR75 000 plus SCR2 500 weekly. Knowingly submitting documentation that is false or misleading has a penalty equal to 5% of the person’s annual turnover. Lastly, failure to keep, retain and maintain relevant records and documents will result in a penalty of SCR10 000, SCR 50 000 and SCR 100 000 for small, medium and large businesses respectively.
The buzz around Uganda
In a very recent development, it has been proposed that it be made mandatory to submit TP information along with income tax returns. The previous regulations only required TP information to be available by the time of filing of tax returns. It would be in taxpayers’ best interests to keep an eye out for this amendment as it could present a more stringent requirement to their TP practices’ and non-compliance could lead to penalties.
Conclusion and next steps
African tax authorities are trying to bring their countries up to speed and bridge the compliance gap with these new developments. If you have any TP concerns or would like to discuss how these updates could impact you, contact us today.
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