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Report Proposes African Transfer Pricing Improvements

by Lorys Charalambous,, Cyprus

19 July 2016

The National Resource Governance Institute has released a paper that looks at African nations' efforts to introduce transfer pricing rules in the mining sector and puts forward policy recommendations.

The study assesses the development and implementation of rules to monitor transfer pricing in the mining sector in countries with varied experiences, looking more in-depth at Ghana, Guinea, Sierra Leone, Tanzania, and Zambia.

The paper says that introducing the concept of the arm's length principle in an income tax law is only a first step. It points out that few countries have followed up with regulations, administrative guidance, or company-specific advance pricing agreements to clarify documentation requirements and methods for determining an acceptable transfer price based on the arm's length principle.

Further, the NRGI paper said that laws or contracts that impose taxes on the mining sector do not always refer to generally applicable transfer pricing rules, leaving an ambiguity that could be exploited by, or lead to disputes with, mining companies.

A lack of expertise in tax authorities is seen as a major issue holding back transfer pricing enforcement. However, contrary to recommendations from international organizations, the paper recommended that establishing a dedicated transfer pricing unit may not be appropriate for all African states and in particular for developing countries with limited resources.

Instead it said that countries should look to focus audits on those that are the highest transfer pricing risk. It therefore called for territories to improve their transfer pricing risk management frameworks to decide which risks warrant an audit. Last, the paper says the country should ensure that their tax officials are adequately trained and should improve inter-agency cooperation particularly on audits.

TAGS: compliance | africa | tax | investment | business | tax compliance | tax avoidance | mining | law | enforcement | agreements | multinationals | legislation | tax planning | transfer pricing | Guinea | Sierra Leone | Zambia | tax reform | trade | Ghana | Tanzania | BEPS

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