African and OECD Transfer Pricing updates: May 2024

A round-up of transfer pricing and related updates from around the African continent and beyond.

(Sources: reports issued by organizations, government documents and legislation (where available) or other tax news platforms, such as Orbitax, MNETax, etc.)

1. Cameroon: Finance Law for 2024 tax changes include CbC reporting requirements

Cameroon’s Finance Law for 2024 (Law No. 2023/019 of 19 December 2023) has introduced several tax changes for 2024. Some of the main tax changes related to intercompany transactions and are summarised as follows:

a) The limit on the deduction of head office expenses is amended with the addition of a limit equal to 1% of turnover for companies in a continuous deficit (loss) situation and for new companies. Furthermore, if there is no turnover, the basis is the total amount of annual expenses (standard limit is unchanged at 2.5% of taxable profit before deducting expenses concerned).

b) With respect to the transfer pricing return requirement for taxpayers falling under the entity responsible for the management of large-scale enterprises, the required general information on the group of associated enterprises is expanded to include information on the nature of the relationship with affiliated enterprises.

c) A requirement is introduced for the electronic submission of a Country-by-Country (CbC) report within 12 months following the close of the tax year:

• • the requirement applies for parent companies of groups with annual consolidated sales of at least CFAF (XAF) 492 000 000 000 (approx. EUR 750 million) in the previous financial year, along with secondary local filing requirements for non-parent constituent entities where:
    • the ultimate parent is established in a state that does not require the filing of CbC reports;
    • the ultimate parent is established in a state with which Cameroon has concluded an agreement for the exchange of information on tax matters but has not concluded an agreement for the automatic exchange of CbC reports; or
    • the non-parent constituent has been informed by the tax authority that there is a systemic failure for the exchange of CbC reports by the ultimate parent’s state of establishment;
  • The secondary local filing requirements will not apply in the event of a substitution filing in another jurisdiction and certain conditions are met, including that the CbC report will be exchanged with Cameroon.

The measures of the Finance Law for 2024 generally apply from 1 January 2024.

2. Eswatini: new interest deduction restriction and transfer pricing rules introduced

According to recent reports, Eswatini published the Income Tax (Amendment) Act 2023 on 20 October 2023, which includes several important tax changes. The main changes include:

a) An interest deduction restriction is introduced with a cap equal to 30% of EBITDA, which applies to companies that are a member of a group, except for banking and insurance companies.

b) A new transfer pricing regime is introduced, including:

• • the definition of the arms-length principle, which means the price payable between independent enterprises;
  • rules for the use of the five standard transfer pricing methods, including comparable uncontrolled price, resale price, cost-plus, transactional net margin, and transactional profit split method;
  • rules for the use of another method if none of the standard methods can be reasonably applied to determine the arm’s length price, in which case the Commissioner must be satisfied that none of the standard methods can be reasonably applied and that such other method yields an arm’s length result; and
  • requirements for taxpayers to keep transfer pricing documentation.

3. Mauritania: Draft Finance Bill for 2024 includes transfer pricing

Mauritania’s Ministry of Finance has published the Draft Finance Bill for 2024. Transfer pricing related measures include:

• Replacing the term “associated enterprises” with “related enterprises” to harmonise the terminology used in the articles of the Tax Code related to transfer pricing;
• Extending the transfer pricing documentation requirements for cross-border related party transactions to domestic related party transactions;
• Changing the CbC reporting threshold to account for the change in the Mauritian currency code from MRO to MRU, with the specified threshold changed from MRO 250 billion to MRU 25 billion (approx. EUR 570 million);
• Extending the fines for non-filing of annual transfer pricing declarations and CbC reports so that the penalties also apply for incomplete or inaccurate filing, including a fine of MRU 2 500 000 (approx. EUR 57 thousand) for transfer pricing declarations, and a fine of MRU 4 000 000 (approx. EUR 91 thousand) for CbC reports.

4. Nigeria: migration of transfer pricing returns and CbC reporting notification to the TaxPro-Max platform

Nigeria’s Federal Inland Revenue Service (FIRS) issued a public notice via X (formerly Twitter) on 18 February 2024 announcing that the filing of transfer pricing returns and CbC reporting notifications has been migrated from e-TP Plat to the TaxPro-Max Platform. With the change, taxpayers have until 30 June 2024 to fulfil their obligations, with related penalties waived for taxpayers that comply by that date. The public notice also provided that taxpayers may re-file returns previously filed on the old platform (e-TP Plat).

5. OECD: Amount B Report providing a simplified approach to transfer pricing for baseline marketing and distribution activities released

The OECD has announced the release of the report on Amount B of Pillar One, which provides a simplified and streamlined approach to the application of the arm’s length principle to baseline marketing and distribution activities. The original announcement is quoted below:

On 19 February 2024, the OECD/G20 Inclusive Framework on BEPS released the report on Amount B of Pillar One, which provides a simplified and streamlined approach to the application of the arm’s length principle to baseline marketing and distribution activities, with a particular focus on the needs of low-capacity countries. The approach set out in this report answers the call of low-capacity countries for what the African Tax Administration Forum (ATAF) has described as “vital” changes to the OECD Transfer Pricing Guidelines, providing what “could be a game changer for the African transfer pricing landscape”. Content from the report has now been incorporated into the OECD Transfer Pricing Guidelines.

Several low-capacity countries report that between 30-70% of their transfer pricing disputes relate to baseline marketing and distribution activities. The changes to the OECD Transfer Pricing Guidelines agreed in this report will provide jurisdictions with the option of applying straightforward bright-line rules to these activities, allowing them to secure revenue and preserve valuable tax administration resources while providing additional certainty to multinational enterprises.

Drawing from existing principles in the OECD Transfer Pricing Guidelines, Amount B provides a simplified and streamlined pricing framework that determines a return on sales for eligible distributors. This framework is expected to reduce transfer pricing disputes, compliance costs, and enhance tax certainty for tax administrations and taxpayers alike. Low-capacity jurisdictions facing limited resources and data availability will especially benefit from the administrative simplification provided by Amount B.

The report, which introduces two options for implementation for jurisdictions that opt into the simplified and streamlined approach from January 2025, describes the circumstances under which a distributor is within scope of Amount B including cases where it also performs certain non-distribution activities, such as manufacturing. It also sets out the activities that may exclude a distributor from the scope of the simplified and streamlined approach, such as the distribution of commodities or digital goods.

The report is released in line with the July 2023 Outcome Statement on the Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy, with further work on the interdependence of Amount B and Amount A under Pillar One to be undertaken prior to the signing and entry into force of the Multilateral Convention.

The inclusion of the Amount B guidance into the OECD Transfer Pricing Guidelines is accompanied by conforming changes to the Commentary on Article 25 of the OECD Model Tax Convention. The conforming changes signpost specific language relating to tax certainty and the elimination of double taxation included in the report on Amount B and are intended to ensure optionality is preserved in all dispute resolution mechanisms for non-adopting jurisdictions. In particular, the amendments to the Commentary on Article 25 direct States and taxpayers to have regard to and follow specific directions within the report on Amount B where relevant to issues being considered under mutual agreement and MAP arbitration procedures. The conforming changes were prepared by Working Party 1, approved by the Inclusive Framework and will be submitted shortly for approval to the OECD Council prior to publication.

Further information on Amount B is available at https://oe.cd/bepsaction1.

6. OECD: comments received on draft toolkit to support developing countries in addressing BEPS risks when pricing lithium published

The OECD has published the comments received on its public consultation on a draft toolkit to support developing countries in addressing BEPS Risks when pricing lithium. The original announcement is quoted below:

On 6 November 2023, as part of the ongoing work of the OECD/IGF partnership on base erosion and profit shifting (BEPS) in the mining programme, the OECD and IGF sought public comments on a mineral pricing framework for lithium.

The toolkit is designed to support developing countries in addressing the transfer pricing challenges faced when pricing minerals. The toolkit applies this transfer pricing framework as documented in Determining the Price of Minerals: A Transfer Pricing Framework to a specific mineral (lithium).

The OECD and IGF are grateful to the commentators for their input and now publish the public comments received.

• Download the comments (Zip file, 7MB – Please open from a desktop computer)

7. Senegal: order on form and content of CbC reports issued

Senegal’s Ministry of Finance issued Order No. 001697 on 22 January 2024, which establishes the content and format requirements for Country-by-Country (CbC) reports, which are in line with the OECD Guidelines.

The Order also provides that CbC reports must be submitted electronically using the form attached to the Order. Senegal introduced CbC reporting requirements in 2018 for MNE groups meeting a consolidated group revenue threshold of XOF 491 billion. When required, the CbC report must be submitted within 12 months following the close of the reporting fiscal year, and a fine of up to XOF 25 million applies for failing to submit the report. Although the CbC reporting requirements have applied since 1 January 2018 under law, it is assumed that actual submission of CbC reports is only required from 2024 considering that the Order establishing the content and format has only recently been issued.

8. Seychelles: new transfer pricing documentation and related party dealings schedule requirements

Seychelles has introduced new transfer pricing documentation and related party dealings schedule requirements with effect from 1 January 2024.

Transfer pricing documentation

a) A person with annual turnover exceeding SCR 1 000 000 (approx. EUR 61 thousand) that enters into controlled arrangements must prepare documentation verifying that the conditions in its controlled arrangements for the relevant tax year are consistent with the arm’s length principle.

b) When required to prepare transfer pricing documentation, the documentation must be submitted within 21 days from the date of a request by the Commissioner General. The documentation requirements include various elements from the OECD’s approved master file and local file format.

c) In addition to the documentation requirements, a person must prepare additional documentation if:

• The total value of all controlled arrangements is more than 10% of the person’s turnover for a tax year; or
• The total value of all controlled arrangements for a tax year exceeds an amount equivalent to SCR 50 000 000 (approx. EUR 3 million).

d) The additional documentation includes:

• Copies of all intercompany agreements concluded by the person;
• A detailed functional analysis of the controlled arrangements between associates, including details of functions performed, assets used, and risks assumed by each party;
• A comparability analysis, including, a description of the process undertaken to identify comparable uncontrolled arrangements; a description of the comparable uncontrolled arrangements; an analysis of comparability of the controlled arrangement(s) and the comparable uncontrolled arrangements; and details and explanation of any comparability adjustments made;
• A summary of financial information used in applying the transfer pricing method;
• An indication of which party to the arrangement is selected as the tested party, if applicable, and an explanation of the reasons for this selection;
• A summary of the important assumptions made in applying the transfer pricing method and reasons for the rejection of other methods;
• Details of any industry analysis, economic analysis, budgets or projections relied on;
• Details of any advance pricing agreements or similar arrangements in other countries that are applicable to the controlled arrangements; and
• The name of the author, company name if employed by a company, of the additional documentation and the date of finalization and approval.

e) Furthermore, a person who is a member of an MNE group and whose consolidated turnover is greater than EUR 100 million must also prepare a Master file in accordance with the OECD Transfer Pricing Guidelines.

f) Transfer pricing documentation must be submitted in English, French, or Creole. The documentation and related information must be kept, retained, and maintained for at least 7 years after the end of the period in which the controlled arrangements took place.

g) Penalties in relation to the new requirements include the following:

• A person that fails to submit documentation when requested, without reasonable cause, will be liable for an additional tax penalty equal to SCR 75 000 (approx. EUR 4 600) plus SCR 2 500 (approx. EUR 155) per week or part of a week the failure continues;
• A person that knowingly submits any false or misleading documentation or information will be liable for an additional tax penalty equal to 5% of the person’s annual turnover; and
• A person that knowingly or recklessly fails to keep, retain, and maintain relevant documents, information, and records will be liable for an additional tax penalty equal to at least SCR 10 000 (approx. EUR 618) for small businesses, SCR 50 000 (approx. EUR 3 000) for medium businesses, and SCR 100 000 (approx. EUR 6 200) for large businesses.

Related party dealings schedule

A person that enters into controlled arrangements must complete and furnish to the Commissioner General a related party dealings schedule. The related party dealings schedule is part of the annual tax return and includes information on the reporting entity, the ultimate controlling entity, the associates with which controlled arrangements are entered into, the controlled arrangements, etc. Records pertaining to the related party dealings schedule must be kept for at least 7 years after the end of the period in which the controlled arrangements took place.

Penalties in relation to the related party dealings schedule requirements are similar to those for the transfer pricing documentation and include the following:

• A person that fails to complete the related party dealings schedule of the tax return, without reasonable cause, is liable for an additional tax penalty equal to:
• SCR 5 000 (approx. EUR 310) if the related party dealings schedule is not furnished in accordance with regulations; and
• SCR 75 000 (approx. EUR 4 600) plus SCR 2 500 (approx. EUR 155) per week or part of a week the failure continues;
• A person that knowingly submits any false or misleading documentation or information will be liable for an additional tax penalty equal to 5% of the person’s annual turnover; and
• A person that knowingly or recklessly fails to keep, retain, and maintain relevant documents, information, and records will be liable for an additional tax penalty equal to at least SCR 10 000 (approx. EUR 618) for small businesses, SCR 50 000 (approx. EUR 3 000 for medium businesses, and SCR 100 000 (approx. EUR 6 200) for large businesses.

9. South Africa: 2024 Budget includes measures for Pillar 2 Global Minimum Tax

South Africa’s Minister of Finance, Enoch Godongwana, delivered the 2024 Budget Speech on 21 February 2024. Tax-related measures noted in the budget mainly relate to the implementation of the Pillar 2 Global Minimum Tax rules, including an Income Inclusion Rule (IIR) and Domestic Minimum Top-Up Tax (DMTT). Subject to approval, the legislation for the new rules will be deemed to have come into operation on 1 January 2024 and will apply to fiscal years beginning on or after that date.

The media statement regarding consultations on the draft legislation reads as follows:

The National Treasury and the South African Revenue Service (SARS) today publish, for public comment, the 2024 Draft Rates Bill (2024 Draft Rates Bill), the 2024 Draft Revenue Laws Amendment Bill, the Draft Global Minimum Tax Bill and the Draft Global Minimum Tax Administration Bill.

The Draft Global Minimum Tax Bill is aimed at implementing the GloBE Model Rules in South Africa to enable South Africa to impose a multinational top-up tax at a rate of 15 per cent on the profits of in-scope multinational enterprise groups. The Draft Global Minimum Tax Administration Bill is aimed at the administration of the Draft Global Minimum Tax Bill.

After receipt of written comments, the National Treasury and SARS will engage with stakeholders through public workshops to discuss the written comments on the draft bills. The Standing Committee on Finance (SCoF) and the Select Committee on Finance (SeCoF) in Parliament are expected to make a similar call later this year for public comment and convene public hearings on the draft bills before their formal introduction in Parliament. Thereafter, a response document on the comments received will be presented at the parliamentary committee meetings, after which the draft bills will then be revised, taking into account public comments and recommendations made during committee hearings, before they are tabled formally in Parliament for consideration.

The 2024 Draft Rates Bill, 2024 Draft Revenue Laws Amendment Bill, Draft Global Minimum Tax Bill and Draft Global Minimum Tax Administration Bill can be found on the National Treasury (www.treasury.gov.za) and SARS (www.sars.gov.za) websites. More general information underlying the draft legislation can be found in the 2024 Budget Review, available on the National Treasury website.

The 2024 Draft Taxation Laws Amendment Bill and 2024 Draft Tax Administration Laws Amendment Bill, which contain the remaining tax proposals announced in the 2024 Budget Review, will be released for public comment later in the year.

Due date for public comments

National Treasury and SARS hereby invite comments in writing on the 2024 Draft Rates Bill, 2024 Draft Revenue Laws Amendment Bill, Draft Global Minimum Tax Bill and Draft Global Minimum Tax Administration Bill. Please forward written comments to the National Treasury’s tax policy depository at 2024AnnexCProp@treasury.gov.za, and SARS at acollins@sars.gov.za by the close of business on 31 March 2024.

10. Zambia: a new member of Global Forum on Transparency and Exchange of Information for Tax Purposes

The OECD has announced that Zambia has joined the Global Forum on Transparency and Exchange of Information for Tax Purposes. The original announcement is quoted below:

Zambia has joined the international fight against tax evasion as the 171st member – and 39th African member – of the Global Forum on Transparency and Exchange of Information for Tax Purposes (Global Forum). Zambia is the sixth African country to join the Global Forum in the past eighteen months, following the Republic of the Congo (June 2022), Angola (March 2023), Zimbabwe (April 2023), Sierra Leone (May 2023) and the Democratic Republic of the Congo (December 2023).

Like all other members, Zambia will participate on an equal footing and is committed to combatting offshore tax evasion through the implementation of the internationally agreed standards of exchange of information on request (EOIR) and automatic exchange of financial account information (AEOI).

Members of the Global Forum include all G20 countries, all OECD members, all international financial centres, and a majority of developing countries.

“We are very pleased to welcome Zambia as the latest Global Forum member,” said Gaël Perraud, Chair of the Global Forum. “Zambia’s decision underlines the growing resolve of African governments to actively weigh in, and ultimately benefit from, the international collaboration in the fight against tax evasion and avoidance.”

Zambia will also join the Africa Initiative, a programme of work launched in 2014 to support domestic revenue mobilisation and the fight against illicit financial flows in Africa through enhanced transparency and exchange of information for tax purposes. The latest progress report Tax Transparency in Africa 2023 highlights the Initiative’s relevance and major successes to date.

The Global Forum is the leading multilateral body mandated to ensure that jurisdictions around the world adhere to and effectively implement both the exchange of information on request standard and the standard of automatic exchange of information. These objectives are achieved through a robust monitoring and peer review process. The Global Forum also runs an extensive capacity-building programme to support its members in implementing the standards and help tax authorities make the best use of cross-border information sharing channels.

11. Zimbabwe: domestic minimum top-up tax introduced

The Zimbabwe Revenue Authority (ZIMRA) has issued Public Notice 9 of 2024, which provides an overview of the main tax changes introduced by Finance Act 2023 (Act No. 13 of 2023), which came into effect on 1 January 2024. The measures include the introduction of a domestic minimum top-up tax (DMTT) with a minimum rate of 15% to guard against ceding taxing rights to foreign jurisdictions under the Pillar 2 global minimum tax rules.

The DMTT is a tax levied on the income of foreign entities active in Zimbabwe. Under the tax, global profits of large multinational enterprises will be taxed at a minimum corporate income tax rate of 15 percent. It targets companies, trusts, or juristic persons domiciled outside Zimbabwe, including locally incorporated subsidiaries, registered companies, and local branches of foreign entities. The essence of this tax is to ensure that foreign entities contribute a fair share to Zimbabwe’s tax revenue, particularly when these entities benefit from the country’s market but pay little to no corporate tax in their country of residence.

To determine the DMTT, a two-step calculation process is used. The actual corporate tax charged on the entity’s income is compared against the corporate tax that would have been charged without deductions under section 15 of the Income Tax Act. This comparison yields the “effective” rate of corporate tax, reflecting the real tax burden on the entity’s income.

The tax comes into play under specific circumstances. It will be applicable when a foreign entity earns income from any business or activity within Zimbabwe. It will also be applicable when the foreign entity’s country of residence either does not levy corporate tax at all or it levies taxes at an effective rate of less than 15% of the corporation’s income. Under these conditions, despite any existing double taxation agreements, the foreign entity is liable to pay the DMTT.

The DMTT for entities not liable to tax in Zimbabwe, the DMTT is equal to 15% of jurisdictional profits earned in Zimbabwe during the assessment year. Where the entity on the other hand, is liable to tax in Zimbabwe but at a rate less than 15%: the DMTT is 15% minus the corporate tax rate paid in the country of residence, or the tax chargeable under Zimbabwean law due to double taxation agreements, whichever is greater.