General rules on Transfer Pricing in Rwanda

General rules on Transfer Pricing in Rwanda

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General rules on transfer pricing

Introduction

On 14 December 2020, the Minister of Finance and Economic Planning of the Government of Rwanda gazetted the Ministerial Order No 003/20/10/TC of 11/12/2020 which establishes general rules on transfer pricing between related persons involved in controlled transactions (TP Rules).

Following the enactment of the TP Rules, taxpayers in Rwanda must adopt a new approach to transfer pricing compliance and documentation.

 

Summary of key implications of TP rules

Below is a summary of the key implications of the TP Rules; 

  • Taxpayers with an annual turnover of more than FRW 600 million and/or substantial controlled transactions (more than FRW 10 million individually or an aggregate value greater than FRW 100 million), shall be required to prepare detailed transfer pricing documentation to evidence the arm’s length nature of the controlled transactions;
  • Transfer pricing documentation must be in place before filing of the annual tax declaration. On request, this should be submitted to the tax administration within 7 days. As a general rule, the tax administration has the power to audit for a period going back five years, in accordance with the statute of limitations; 
  • The TP Rules apply to both local and international related party transactions between related persons. Taxpayers that have domestic transactions with related parties operating under preferential tax zones in Rwanda should also ensure compliance with the TP Rules; 
  • In a bid to counter harmful tax practices and tax base erosion, transactions between independent parties also fall under the ambit of Rwanda transfer pricing law, particularly where these are undertaken with parties based in beneficial tax jurisdictions; 
  • The median point of a benchmarking study shall be used as the reference point for transfer pricing adjustments, where the pricing of a transaction falls outside the arm’s length (interquartile) range; 
  • The TP Rules introduce the requirement to file a Country-by-Country (CbyC) report not later than 12 months after the last day of the reporting fiscal year, where the ultimate parent of the multinational enterprise is required to prepare such a report; 
  • Controlled transactions involving a person who does not control the risks or have the financial capacity to assume the risks associated with a transaction, for tax purposes, shall not be allocated the profits associated with those risks; and 
  • The TP Rules apply to both local and international related party transactions between related persons. Taxpayers that have domestic transactions with related parties operating under preferential tax zones in Rwanda should also ensure compliance with the TP Rules; 

With the TP Rules coming into effect on 14 December 2020, taxpayers should ensure that their controlled transactions and the supporting information thereof, fully satisfy the requirements of the TP Rules. 

Further, taxpayers should ensure that they have their transfer pricing documentation in place prior to filing their income tax declaration. 

 

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