ey africa tax conference - ey - united statesfile/ey-transfer-pricing-updates-across-africa.pdf ·...

of 36/36
Transfer pricing updates across Africa EY Africa Tax Conference September 2014

Post on 02-Feb-2018

217 views

Category:

Documents

2 download

Embed Size (px)

TRANSCRIPT

  • Transfer pricing updates across Africa

    EY Africa Tax Conference

    September 2014

  • Page 2

    Panel

    Jemimah Mugo

    Associate Director, Transfer Pricing

    EY Kenya

    Panel Cornelia Wolff

    Director Africa Transfer

    Pricing and Operating Model

    Effectiveness Leader

    EY South Africa

    Tom Philibert

    Partner, Tax Services

    EY Senegal

    Moderator

    Patrick Oparah

    Associate Director, Transfer Pricing

    EY Nigeria

    Amanda Layne

    Manager, Transfer pricing

    EY Ghana

    Michael Hewson

    Executive Director, Transfer Pricing

    EY South Africa

    Transfer pricing updates across Africa

    Patrick Chege

    Head of Audit, Transfer Pricing and

    Large Taxpayers Office

    Kenya Revenue Authority, Kenya

    M.O. Gbonjubola

    Deputy Director and Head of Transfer

    Pricing Division

    Federal Inland Revenue Service, Nigeria

  • Page 3

    Agenda

    Introductions

    Transfer pricing landscape

    Update on Africa African Tax Administration Forum (ATAF)

    Latest developments:

    East Africa

    Francophone sub-Saharan Africa (FSSA)

    West Africa

    Southern Africa

    TP trends audit activity and audit triggers

    Transfer pricing updates across Africa

  • Page 4

    Transfer pricing landscape

    Transfer pricing updates across Africa

  • Page 5

    Transfer pricing landscape

    South Africa: TP legislation based on OECD,

    documentation requirements, thin cap and active revenue authority

    Egypt: TP legislation, documentation

    requirements, thin cap, active revenue authority

    and APA program

    Uganda: TP legislation based on OECD,

    documentation requirements, onerous penalty

    provisions and thin cap

    Algeria: TP legislation based on OECD,

    documentation requirement and 25% penalty on

    TP adjustment

    Kenya: TP legislation based on OECD,

    documentation requirements, thin cap and active

    revenue authority

    Tanzania: TP legislation based on OECD

    Guidelines, UN TP Manual issued in 2014,

    documentation requirements and thin cap

    Namibia: TP legislation based on OECD and thin

    cap

    Nigeria: TP legislation based on OECD

    Guidelines, UN TP Manual documentation

    requirements, thin cap and APA program Malawi: TP legislation based on OECD,

    documentation requirements and thin cap

    Burkina Faso: TP legislation based on OECD and

    documentation requirements

    Angola: TP legislation based on OECD and

    documentation requirements

    Ghana: TP legislation based on OECD,

    documentation requirements and thin cap

    Cameroon: TP legislation based on OECD,

    documentation requirements and thin cap Zimbabwe: TP legislation based on OECD and

    thin cap

    Rest of Africa:

    TP regulated through general anti-avoidance or arms length principles

    Zambia: TP legislation based on OECD, thin cap

    Senegal: TP legislation , documentation

    requirements and thin cap

    Sierra Leone: Expansion of arms length principle

    in tax act, transfer pricing agreements in advance

    are available

    Gabon: TP legislation based on OECD,

    documentation requirements and thin cap

    Transfer pricing updates across Africa

  • Page 6

    Transfer pricing landscape

    There is an increasing need for TP

    documentation in Africa. However there are

    differences:

    Sophistication levels of revenue authorities vary,

    i.e. new legislation; new practice tend to focus on

    low-hanging fruit e.g. documentation.

    54 countries, each with different requirements

    where customization is required, ONE transfer

    pricing document for Africa is not necessarily

    correct.

    There is limited availability of comparable data.

    TP documentation is required for exchange

    control purposes.

    TP legislation and practice in Africa are typically

    based on the OECD TP guidelines. Some

    countries also consider the United Nations TP

    manual.

    Comprehensive local transfer pricing documentation

    Annexure to master file is required

    Annexure to master file is optional

    Niger Mali

    Morocco

    Algeria

    Sudan Chad

    Ethiopia

    South Africa

    Gh

    an

    a

    Nigeria

    Tanzania

    Zambia

    Central African

    Republic

    Botswana

    Angola

    Democratic Republic of Congo

    Kenya

    Lesotho

    Malawi

    Mozambique

    Swaziland

    Uganda

    Zimbabwe Mauritius

    Mayotte Comoros

    Tunisia

    Cameroon

    Gabon

    Equatorial Guinea

    Cote dIvoire Togo

    Benin

    Senegal Gambia

    Guinea

    Burkina Faso

    South Sudan

    Transfer pricing updates across Africa

  • Page 7

    Update on Africa

    Transfer pricing updates across Africa

  • Page 8

    ATAF

    Promotes efficient, effective and economic tax administrations across the African region

    A platform to promote and facilitate mutual cooperation

    Established work program and appointed intermediary secretariat

    Established three committees, including:

    Indirect taxes

    Exchange of information

    Transfer pricing effective management of transfer pricing risk

    Transfer pricing updates across Africa

  • Page 9

    TP issues identified by the transfer pricing committee

    Benchmarking and the challenge of obtaining data on such independent enterprise

    transactions in the African marketplace

    Capacity building and training TP highly specialized area, low level of skills currently in most

    countries

    Identification of transfer pricing risk in order to

    Address potential tax loss

    Maximize the use of scarce transfer pricing resource

    Keep taxpayers compliance costs to a minimum

    Use of the arms length principle in their transfer pricing legislation and how to legislate this

    Application of relevant legislation in practice in member countries, including guidance for

    taxpayers and administrators

    Transfer pricing updates across Africa

  • Page 10

    ATAF member countries

    ATAF member countries

    Transfer pricing updates across Africa

    EY office

    No EY office, but support available

  • Page 11

    Latest developments

    Transfer pricing updates across Africa

  • Page 12

    Latest developments East Africa Kenya

    Establishment of the TP audit unit and increased capacity-building initiatives

    Increased cooperation among the revenue departments customs and TP audit unit resulting

    in increased transfer pricing queries

    Bias toward Asian (including Indian) and Eastern European comparable companies for

    purposes of benchmarking

    Draft TP regulations:

    Mandatory contemporaneous TP documentation

    Guideline on benchmarking

    Substance-over-form rule

    Tested party results must lie at the median of the interquartile range, no downward adjustment

    Segmented financial information where there are both controlled and uncontrolled transactions and

    multiple product lines

    Transfer pricing updates across Africa

  • Page 13

    Latest developments East Africa Tanzania (1)

    TP Regulations were published in February 2014

    TP guidelines refer to the OECD guidelines and UN TP manual

    Apply to controlled transactions:

    Domestic transactions

    Cross-border transactions

    Head offices and branches shall be as associates

    Recognizes the five OECD TP methods (hierarchy to be followed, traditional methods taking

    precedence)

    Commissioner empowered to prescribe other methods

    Apply most appropriate method

    Intangible property sale or licence: CUP or residual profit split

    In applying comparability of factors between results of controlled and uncontrolled

    transactions, use of the same basis year for a year of income is required.

    Transfer pricing updates across Africa

  • Page 14

    Latest developments East Africa Tanzania (2)

    Contemporaneous TP documentation

    Any person with controlled transaction to prepare contemporaneous TP documentation

    TP document must be put in place prior to the due date for filing the income tax return for that year

    TP document must be submitted to the Commissioner within 30 days upon request

    Failure to comply with these documentation requirements imprisonment (up to six months or

    minimum fine of US$30,000)

    Failure to comply with the arms length principle, documentation requirements and application

    of the various comparability factors to attract a penalty of 100% of the underpaid tax

    The regulations are to be construed in line with:

    The arms length principle as per Article 9 of the OECD or UN Model Tax Convention on Income and

    Capital

    The OECD TP guidelines as approved, supplemented and updated from time to time

    The UN TP practical manual for developing countries as supplemented and updated from time to time

    Transfer pricing updates across Africa

  • Page 15

    Latest developments East Africa Uganda and other countries

    In line with section 164 of the Income Tax Act, Uganda issued transfer pricing regulations

    effective from 1 July 2011, with practice notes being issued in 2012

    Contemporaneous TP documentation required not to be submitted with the return, but to be in place

    before filing return

    The arms length principle is, however, enshrined in the tax laws of the rest of the East African

    countries

    Increased cooperation between the revenue authorities KRA providing the training hub for

    officials from other revenue authorities

    For instance, there have been discussions around joint audits of multinationals

    Transfer pricing updates across Africa

  • Page 16

    Latest developments FSSA Gabon

    Finance Act 2014 introduced obligation to prepare TP documentation.

    TP documentation should detail the TP policy of the group and should include legal, economic,

    tax and accounting details, and the methodology used to validate the TP policy. Furthermore it

    should contain details on the relationship between group companies involved in the

    intercompany transaction(s).

    Non-compliance is subject to penalties (5% of profits distributed abroad; minimum penalty of

    XAF5m per year).

    Finance Act 2014 introduced possibility to conclude APA.

    Increase in TP tax audits can be expected.

    Transfer pricing updates across Africa

  • Page 17

    Latest developments FSSA Guinea

    Finance Act 2014 introduced a documentation requirement for intercompany transactions.

    Companies are required to maintain documentation to justify the TP methods used. Taxable

    profits will be adjusted with revenues indirectly transferred to companies outside Guinea.

    Legislation is still broad, without specific provisions on what exactly the documentation should

    entail, but introduction of new provision clearly indicates increased focus on TP.

    Transfer pricing updates across Africa

  • Page 18

    Latest developments FSSA Senegal

    Senegal introduced a TP documentation obligation in 2013 (with retroactive effect to 2012).

    Provision in Tax Code details what information should be included in TP documentation

    (description fact pattern, industry overview, company overview, functional analysis (with

    consideration of assets used and risk borne), description of TP method and comparable

    search).

    Now that 2013 CIT returns are filed by Senegalese taxpayers, increased TP tax audit activities

    from the revenue may be expected.

    Transfer pricing updates across Africa

  • Page 19

    Latest developments West Africa Nigeria (1)

    TP Regulations introduced in September 2012

    Contemporaneous TP documentation requirements

    Effective for basis periods beginning after 2 August 2012

    Reference to OECD Guidelines and UN Practice Manual

    Very broad definition of connectedness, series of transactions included

    Includes APA program

    Mandatory TP returns due with tax return

    Safe Harbor where other regulatory agencies determine pricing

    TP without intangibles?

    National Office for Technology Acquisition and Protection (NOTAP) governs inbound technology

    transfer agreements, including pricing

    Excluded from TP Regulations by the safe harbor, but stakeholder discussions continue

    Transfer pricing updates across Africa

  • Page 20

    Latest developments West Africa Nigeria (2)

    Federal Inland Revenue Service (FIRS) activity

    Actively communicating with taxpayers and advisors, letters and stakeholder events

    No written guidance on technical aspects of implementation of the regulations

    Expectation of local comparables

    Specialist TP division of 16+ set up in October

    Request for TP policy began in January 2014

    Clarification that TP Policy must be submitted together with transfer pricing return

    Elements of the BEPS agenda in the FIRS approach

    Transfer pricing updates across Africa

  • Page 21

    Latest developments West Africa Ghana

    2012 TP regulations introduced contemporaneous TP documentation requirements for intercompany

    transactions undertaken as of 14 September 2012.

    The regulations also introduced the mandatory annual filing of TP returns. The standard deadline for filing

    is four months after the company financial year end.

    The Ghana Revenue Authority (GRA) released practice notes to the TP regulations in September 2013.

    The practice notes provide guidance as to the GRA interpretation of the regulations, including expected

    content requirements for documentation.

    The GRA has recently set up a specialist Transfer Pricing Audit Unit. The GRA has indicated that TP

    audits shall be undertaken by the new unit as of 2014.

    The Ghana Investment Promotion Centre Act, 2013 (GIPC Act, 2013) repealed the previous exemption

    for petroleum and mining operations from the regulatory authority of the GIPC.

    Consequently, all intercompany agreements within the mining and petroleum industries for use of

    intangibles and management or technical services provided by a nonresident must be approved by the

    GIPC. Failure to gain such approval may lead to prohibition of remittances abroad.

    Transfer pricing updates across Africa

  • Page 22

    Latest developments West Africa Sierra Leone

    Sierra Leone has not enacted any TP specific guidelines and, historically, the risk of a transfer

    pricing audit has been low.

    However, the Finance Act 2013 has recently expanded the arms length provisions in the

    current tax act to better address the issue of TP.

    The Finance Act, 2013 explicitly applies the arms length principle to dealings between a Sierra

    Leone permanent establishment and its nonresident owner.

    The fact that the legislation is being revised with emphasis on transfer pricing, among other

    tax areas - could suggest that such provisions may be more strictly enforced in future.

    Transfer pricing updates across Africa

  • Page 23

    Latest developments Southern Africa Angola

    General arms length principle foreseen in article 55 of the Industrial Code.

    Contemporaneous documentation rules foreseen in the Statute of Big Taxpayers (Presidential Decree

    147/13 of 1 October).

    List of big taxpayers published in February 2014 (Decree 471/14 of 28/2) and updated in March 2014

    (Decree 599/14 of 24/3).

    486 companies considered big taxpayers plus all public companies considered to have a major

    dimension, financial institutions and oil, diamond and telecommunication companies.

    Documentation obligation applicable to all companies considered big taxpayers with turnover in excess

    of USD 70m.

    Deadline for presentation of the documentation at the big taxpayers office is 30 June.

    Questions to be answered: do all big taxpayers require to have documentation? Does the year of 2013

    (deadline 30 June 2014) have to be documented? Questions to be clarified (hopefully soon) via

    administrative ruling.

    Transfer pricing updates across Africa

  • Page 24

    Latest developments Southern Africa South Africa

    Extensive TP-related reporting requirements in the annual tax return (ITR14) that allow the

    South African Revenue Service a risk assessment of the local taxpayer. The information

    request includes (inter alia). Availability of transfer pricing documentation to support the arms length nature of the intercompany

    transactions in the respective fiscal year

    Transactions with related parties based in tax havens

    Guaranteed income

    Value of the transaction amounts

    There has been an increase in TP reviews and audits in the last 12 months.

    Exchange control application for management services fee remittance with the South African

    Reserve Bank triggered review of potential permanent establishment of service provider in

    South Africa.

    Service fees are subject to withholding tax equivalent to 15% of the service fee under the

    domestic law subject to tax treaty relief. This new rule is to become effective 1 January 2016.

    Transfer pricing updates across Africa

  • Page 25

    TP trends Audit activity

    Transfer pricing updates across Africa

  • Page 26

    Current transfer pricing trends

    Audit activity

    FSSA

    Eastern region

    South and southern region

    West region

    Transfer pricing updates across Africa

  • Page 27

    FSSA region

    Increased focus on TP in FSSA, leading to introduction of TP documentation requirements in

    certain countries (Senegal, Cameroon, Guinea and Gabon). Other countries continue to apply

    general anti-abuse provisions, but more law changes to introduce documentation obligations

    can be expected.

    Increased tax audit risks in countries with new TP documentation requirements.

    Audit will focus on all cross-border intercompany transactions.

    Continuous or incidental tax-loss situation or intercompany transactions with group companies

    in tax havens or low-tax jurisdictions may trigger TP audit.

    Transfer pricing updates across Africa

  • Page 28

    Audit activity Eastern region

    Country TP audit

    activity

    Targeted

    transactions

    Resolution APA program Transactions

    covered

    Focus on

    binding ruling

    Kenya Yes All Numerous

    assessments

    and litigation

    No N/A Limited

    Tanzania Yes Management

    fees, royalties

    and financing

    None concluded Yes None concluded Limited

    Uganda No All None Yes None concluded None as yet

    Transfer pricing updates across Africa

  • Page 29

    Eastern region

    Kenya focusing on all transactions in audits

    Numerous assessments and litigation

    Key focus around business restructuring

    Tanzania and Uganda undertaking TP audits as part of tax audit program

    Transfers of functions and risks looked at closely

    Transfer pricing updates across Africa

  • Page 30

    Audit activity South and southern region

    Country TP audit

    activity

    Targeted

    transactions

    Resolution APA program Transactions

    covered

    Focus on BR

    South Africa Yes Management

    fees and

    industry

    segment

    No litigation to

    date resolved

    through ADR

    No N/A Limited

    Namibia Yes Outbound fees

    and raw

    materials

    No litigation No N/A None

    Zambia N/K N/K N/K No N/A N/K

    Zimbabwe None as yet N/K N/K No N/A N/K

    Malawi Yes Loans,

    management

    fees and

    royalties

    None concluded

    to date

    No N/A None

    Angola None N/A N/A No N/A No guidance

    Mozambique None N/A N/A No N/A No guidance

    Transfer pricing updates across Africa

  • Page 31

    Southern region

    Increased audit activity with more experienced revenue personnel

    Focus heavily on both inbound management fees benefit test and outbound cost base

    Focus also on industries such as automotive

    Malawi focus largely on outbound payments

    Angola

    No audit activity registered for TP in Malawi, due to recent nature of legislation

    Transfer pricing updates across Africa

  • Page 32

    Audit activity West region

    Country TP audit

    activity

    Targeted

    transactions

    Resolution APA program Transactions

    covered

    Focus on BR

    Nigeria None N/A N/A No N/A No guidance

    Ghana None N/K N/K No Based on

    private rulings

    N/K

    Transfer pricing updates across Africa

  • Page 33

    West region

    Ghana permits private binding rulings to determine the pricing of goods and services.

    Business restructurings are reviewed for potential tax consequences anti-avoidance rules

    exist.

    Audit activity is not yet prevalent in Nigeria.

    General tax rules are relied on to counter tax avoidance through business restructurings.

    Transfer pricing updates across Africa

  • Page 34

    Typical TP enquiry from revenue authorities

    Initial risk assessment Review of filings and accounts possible initial queries.

    In-office desk audit documentation review Review of documentation, responses and other information. Possible comparable

    analysis to test results and further queries

    Field audit interviews and site visit Interviews with operational and financial people at client. Testing facts against

    documentation.

    Review and collation stage Requests for more information and possible additional meetings

    Outcome Letter of findings and letter of assessment

    Transfer pricing updates across Africa

  • Page 35

    Particular audit triggers

    Activities in or involving tax havens or low-tax countries (note that this could be where there

    are incentives)

    Losses over a number of years or low contribution to the income tax base

    Large royalty and management fees easy targets

    Charges for the use of IP and the economic owner of the IP

    Business restructuring

    Transfer pricing updates across Africa

  • EY | Assurance | Tax | Transactions | Advisory

    About EY

    EY is a global leader in assurance, tax, transaction and advisory

    services. The insights and quality services we deliver help build trust and

    confidence in the capital markets and in economies the world over. We

    develop outstanding leaders who team to deliver on our promises to all

    of our stakeholders. In so doing, we play a critical role in building a better

    working world for our people, for our clients and for our communities.

    EY refers to the global organization, and may refer to one or more, of the member

    firms of Ernst & Young Global Limited, each of which is a separate legal

    entity. Ernst & Young Global Limited, a UK company limited by guarantee,

    does not provide services to clients. For more information about our

    organization, please visit ey.com.

    2014 EYGM Limited.

    All Rights Reserved.

    ED 0115

    In line with EYs commitment to minimize its impact on the environment, this

    document has been printed on paper with a high recycled content.

    This material has been prepared for general informational purposes only and is not

    intended to be relied upon as accounting, tax, or other professional advice. Please refer

    to your advisors for specific advice.

    ey.com

    EYG no: DL1068