Transfer Pricing - What you should know when operating in Africa
10 October 2016
By Jolani Proxenos, BDO South Africa
What is Transfer Pricing?
The OECD Guidelines defines transfer prices as “the prices at which an enterprise transfers physical goods and intangible property or provides services to associated enterprises”. These transfer prices should take place on an arm’s length basis. Transactions between connected parties should have the same terms and conditions as transactions with unconnected parties.
How is Africa responding
Many African countries are aware of the dangers of having an undeveloped tax and administration system. The African countries are starting to improve their tax regimes, specifically their transfer-pricing framework.
In recent years, many African countries adopted transfer pricing legislation and are serious to the implementation thereof. South Africa issued a draft notice lowering the threshold for transfer pricing documentation; this will place a reporting obligation on even more companies.
Examples of African countries committing to a transfer-pricing regime are Zimbabwe and Zambia. Both these countries adopted legislation providing guidelines on the application of transfer pricing regulations. Zimbabwe and Zambia went a step further; they stipulate that every entity engaging in transactions between connected parties should apply the arm’s length principle and provide reporting documents. If a resident company transacts with a connected company, the arm’s length principle should apply, regardless of whether the transaction is cross border or domestic.
Transfer pricing is becoming vital for companies not only conducted business into Africa but also with domestic connected parties. To ensure that your company operates on an arm’s length basis, experience and in-depth knowledge is vital. BDO offers the expertise necessary and African network to assist with both cross border and domestic transactions.
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