What taxing the global digital economy means for Africa?

Brandon Oaker and I wrote the following article which was published in Business Day late last year and I wanted to post it here as well with a few updates.

As the G20 and most inclusive framework countries back a two-pillar global tax reform to address tax challenges that have arisen from the globalisation and digitisation of the global economy, Africa needs to campaign for more equitable tax allocation to ensure it is not left behind once again.

When gross domestic product (GDP) was first postulated in the first half of the last century, it measured physical goods and services within a brick-and-mortar environment to represent a country’s economic contribution to the global economy. But in a world where assets and services aren’t just physical but digital, intangible, fluid and often volatile, a century-old tax regulation is no longer fit for purpose and needs an overhaul.

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What does the new financial transactions guidance provided by the OECD mean for you?

What is it all about?

More than 18 months after the publication of its non-consensus discussion draft on Financial Transactions (BEPS Actions 8 to 10), the OECD released its ‘final’ report on the transfer pricing of financial transactions on Tuesday 11 February 2020. The original draft left some 25 areas of disagreement, representing a non-consensus position of the OECD’s Committee on Fiscal Affairs. While those areas are largely resolved by the guidance, there remain some issues that have not been definitively addressed.

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Transfer pricing in Malawi

Effective 1 July 2017, Malawi introduced two transfer pricing (TP) related regulations. Firstly, the Taxation (Transfer Pricing Documentation) Regulation which deals with transfer pricing documentation requirements and secondly the Taxation (Transfer Pricing) Regulation which covers general aspects of TP such as approved methods, key terms, guidance on intangible property, general application and how to test related party transactions. 

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South African transfer pricing regulations amended to amass taxpayers

The South African Draft Taxation Laws Amendment Bill (TLAB) has been released for comment. It has been a while since we’ve seen a material change to the transfer pricing regulations. The current inclusion of the “associated enterprise” definition into the transfer pricing regulations is welcomed as it aligns South African legislation to global standards.

The draft TLAB has not removed the connected person concept within section 31 but added the associated enterprise definition to the affected transaction definition. Therefore, a transaction, operation, scheme, agreement or understanding still has to fall within the four provided scenarios under section 31(1)(a), but now the persons in relation to the affected transaction can either be a connected person or an associated enterprise.

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Nigeria is ready for transfer pricing, are you?

Many of our readers have an exposure to transfer pricing risk in Nigeria, it being the largest African economy by GDP in 2017. So I thought I would share an update on Nigeria’s transfer pricing.

Nigeria has aligned its transfer pricing rules to the recommended approach in the 2017 OECD Guidelines. This includes the CBCR, master file and local file documentation approach as per Chapter V. What I wanted to highlight though is that the Federal Inland Revenue Services (FIRS) has also introduced other changes, including: Continue reading “Nigeria is ready for transfer pricing, are you?”

Arm’s length range – what does it really mean?

In South Africa, it seems that the unspoken rule is that the interquartile range (IQR) is the arm’s length range. To qualify this statement, I am only referring to a margin derived from a benchmarking study that uses external comparables.

Why is this important? Let me start by explaining what an arm’s length range is. As mentioned by the OECD Guidelines, transfer pricing is not an exact science and therefore it is likely that certain methods can produce a range of outcomes or observations which are equally reliable. For the purpose of this blog post, we are really considering the cost plus method, resale price method or transaction net margin method. There could be many reasons as to why there are different results from our observations, in the form of a margin or price. For example, there could be geographical differences which may have certain location savings, or there may be a small difference in the products or services sold. But there are also commercial reasons as to why different comparable third parties may charge a different price for a comparable product or service in the same region. Continue reading “Arm’s length range – what does it really mean?”

Weekly transfer pricing roundup – 17 July 2017

There was a lot of movement in transfer pricing and BEPS around Africa this week. Cameroon signed the relevant MLIs to address BEPS, becoming the 70th member to sign the MLIs. The Ghana Revenue Authority (GRA) held a three day conference on transfer pricing abuse. Continue reading “Weekly transfer pricing roundup – 17 July 2017”

Weekly transfer pricing roundup – 10 July 2017

The new transfer pricing guidelines will be released today. Now if that didn’t bring a smile to your face, I am not sure what will on a Monday morning. Last week, Barbados joined the inclusive framework as the 101st jurisdiction and Mauritius signed the multilateral convention to tackle tax avoidance by multinational enterprise. Hopefully, Mauritius won’t take too long to implement this in their law but this BEPS thing is moving along faster and faster. It feels like yesterday when we received thousands of pages to read from the OECD and actual implementation was still years away. Now, in six months time most larger MNEs will have to file CbC reporting, master files and local files. There are still some teething problems but the train has left the station. Continue reading “Weekly transfer pricing roundup – 10 July 2017”

Weekly transfer pricing roundup – 03 July 2017

The most exciting news must be that we can expect an updated version of the OECD Guidelines, this week. I have already put it on my wishlist. It should facilitate the reading between the BEPS Action points and the previous OECD Guidelines quite a bit. The info itself is already out there, but we all love a shiny new book, well I do. 

Also the OECD mentioned that it will add an online database to its website in July to facilitate the matching of countries’ reservations in the respective MLIs. The OECD is now consulting with countries to check over 150,000 data points to ensure the accuracy of the database. Considering all the reservations this should assist in applying the right clauses.  Continue reading “Weekly transfer pricing roundup – 03 July 2017”

Weekly transfer pricing roundup – 19 June 2017

Now that all the excitement of the signing of the MLIs is over, what does that mean? The OECD states that 67 countries have signed the MLI with an additional nine countries having expressed their intent to sign. The OECD expects another 25 – 30 countries to sign. This means there will be approximately 100 countries that have signed up to these MLIs shorty. This is in line with the 99 countries that have signed up for the Inclusive Framework. The signed MLIs will modify approximately 1,100 tax treaties to implement the following four action points: Continue reading “Weekly transfer pricing roundup – 19 June 2017”