With 54 countries and 10 dependent territories, the African continent holds a diverse range of jurisdictions at varying stages of economic development. With significant foreign investment and rapid growth, many African countries are taking steps to shore up their tax systems and ensure their ability to tax a share of profits attributable to their jurisdictions. Many of them are also seeking to create favorable conditions for business activity and investment.

This geopolitical push and pull has moved transfer pricing to the top of the agenda. Many countries in Africa have recently adopted or updated transfer pricing rules in line with the Organisation for Economic Co-operation and Development’s (OECD) guidelines. At the same time, companies face deepening scrutiny from tax authorities, investors and other stakeholders about their approach to tax and where they pay it, and the number of transfer pricing audits in Africa has grown dramatically.

In this article, we look at some of the biggest forces affecting the transfer pricing landscape in Africa. We highlight some of the most important transfer pricing reforms in this dynamic region and some leading practice for managing compliance and mitigating transfer pricing risk.

Joining in the global project to address BEPS

The OECD’s global project to curb base erosion and profit shifting (BEPS) is perhaps the biggest factor driving transfer pricing change in Africa and globally. Many African countries are putting in place new international tax rules and changing tax treaties in line with the OECD’s recommendations.

Twenty-eight countries in Africa are among the 135 members of the OECD’s Inclusive Framework. These and other countries have been keen to implement the BEPS minimum standards. For example:

  • South Africa, Nigeria and Gabon have implemented country-by-country tax reporting, and a number of other countries, such as Kenya, are expected to follow suit.
  • Many African countries are taking part in the global transfer pricing debates, especially regarding requirements for service transactions, capital-rich and low-function entities, and analyses of intangibles based on development, enhancement, maintenance, protection and exploitation (DEMPE).
  • Many African countries are also taking steps to implement the OECD’s recommendations for countering harmful tax practices through coordinated international tax rules and enforcement efforts.

Beyond the BEPS minimum standards, countries in Africa, such as Uganda, Benin and Zambia, are imposing the OECD’s new limitations on interest deductibility as a percentage of earnings before interest, deductions, taxes and amortization (EBITDA). Some countries are also exploring the adoption of safe harbor regimes.

Recent transfer pricing reforms: region by region

Below are snapshots of new and revised transfer pricing rules and practices being put in place in selected African jurisdictions.

Western Africa


Nigeria’s transfer pricing regulations were revised in 2018, largely to align with the OECD’s BEPS recommendations. Nigeria has imposed the OECD’s three-tiered approach to transfer pricing documentation (i.e. country-by-country reports, master and local files), with the threshold for country-by-country reporting set at 160 billion Nigerian naira (about 750 million euros).

Other key transfer pricing reforms announced by Nigeria include

  • new requirements on procurement and intra-group service transactio
  • introduction of guidelines on pricing of commoditie
  • a limitation of deduction on royalty payment
  • clarification that only pricing arrangements approved by the tax authority (and not other government agencies) qualify for a safe harbor
  • strict penalties for non-compliance.

Since these rules were introduced, the number of transfer pricing audits has risen steadily and the Nigerian tax authority has been penalizing taxpayers found in default. The tax authority now has greater access to information on the global activity of multinational enterprises, and it is also taking an aggressive stance toward revenue generation and collection. As a result, the volume of transfer pricing audits in Nigeria is expected to keep increasing in the future.[1]


Ghana’s transfer pricing rules were first published in 2012 and are likely to be revised in the near future. Ghana is expected to align its approach with the OECD’s recommendations, but it has not yet implemented country-by-country reporting or three-tiered transfer pricing documentation requirements.

Eastern Africa


Regulations issued in 2018 require companies with a threshold of 4.3 million US dollars (USD) to file contemporaneous transfer pricing documentation with their income tax returns. Penalties may be imposed of up to 100 percent for adjusted transfer pricing amounts and up to USD23,000 for failing to maintain contemporaneous documentation.

Other new rules include:

  • elimination of royalties for locally developed intangibles that are transferred and then licensed for use in Tanzania
  • rejection of service transactions where remuneration is based on a percentage (i.e. remuneration must be based on cost)
  • the use of a tested party outside Tanzania is allowed only when the party’s financial statements are provided
  • comparable uncontrolled price method prescribed as the appropriate method for commodity transactions. 


Kenya’s draft income tax bill for 2018 expanded the scope of the country’s transfer pricing rules to cover transactions with parties in beneficial tax regimes as well as both associated and unrelated parties in preferential tax regimes offered by foreign countries. Transactions with non-resident persons that lack economic substance will also be considered for transfer pricing adjustments.

Other new rules require annual contemporaneous documentation, use of a prescribed method for commodity transactions, rejection of negative transfer pricing adjustments and acceptance of secondary transfer pricing adjustments. A penalty for failing to maintain documentation may be imposed of 2 percent of the controlled transaction’s value.

As Kenya increasingly becomes a preferred investment destination for multinational entities looking to set up in Africa, transfer pricing has become a point of focus of the Kenya Revenue Authority (KRA). Recognizing the central role played by international companies in the country’s tax system, the KRA recently formed a specialized international tax and transfer pricing unit within the Large Taxpayers Office (LTO), which is responsible for pursuing and handling transfer pricing issues.


Among other transfer pricing-related changes, Rwanda’s 2018 income tax law allows for secondary transfer pricing adjustments, while setting a 2 percent cap on management, technical services and royalty fees.

In the near future, Rwanda’s tax authority is expected to release detailed guidance on the country’s new rules for country-by-country reports, annual transfer pricing filing requirements and transactions with parties in beneficial tax regimes.


Uganda’s transfer pricing rules have been in place since 2011 and cover both cross-border and domestic transactions. Where provisional tax paid is less than 90 percent of the actual tax assessed, a penalty of 20 percent of the shortfall may apply. For documentation purposes, only a local file is required, and, for in-country transactions, a filing threshold of USD135,000 applies. Unilateral, bilateral and multilateral APAs are available.


Ethiopia is not an OECD member, but its transfer pricing regulations are influenced by the OECD’s guidelines. A 2015 directive requires related resident taxpayers with annual turnover of over USD22,000 to maintain transfer pricing documentation. The directive also details the concept of comparability based on the OECD’s provisions, allows the use of other methods when justified, and prohibits the use of secret comparables. Transactions that are assessed as outside the arm’s length range are adjusted to the median. Taxpayers can also apply for APAs under the directive.

Southern Africa

While Botswana, Swaziland, Zimbabwe and Mozambique impose rules on transfer pricing documentation, only South Africa currently requires country-by-country, master file and local file reporting. (Botswana (discussed below) and Namibia intend to adopt country-by-country tax reporting in the future.)

South Africa’s transfer pricing legislation was overhauled as of April 2012 to align more with the OECD’s guidelines. Although South Africa is not an OECD member, the country has been actively involved in the OECD Working Party processes around BEPS. South Africa is therefore expected to release new transfer pricing guidance in the near future.[1]

Even though South Africa has had transfer pricing rules since 1995, transfer pricing audit activity only commenced from about 2000. The South African Revenue Services (SARS) now has a full team of transfer pricing specialists and increased audit activity has been observed. With the recently introduced transfer pricing documentation requirements, more relevant information is being provided to the tax authority, and their use of risk assessment and other IT tools has further improved capabilities.

As a result, taxpayers have seen significantly increased focus on transfer pricing since mid-2019, and SARS has announced that it will focus on transfer pricing reviews to combat base erosion and profit shifting. Evidence of these efforts was seen in the national budget for 2020-2021 presented on 26 February 2020 which proposed a significant change to the interest limitation provisions in respect of cross-border loans, introduced for years of assessment commencing on or after 1 January 2021.


Botswana’s transfer pricing regulations took effect in July 2019, setting out a new framework for enforcing the arm’s length principle. Among other things, the regulations:

  • Prescribe five approved methods of transfer pricing, prioritizing use of the comparable uncontrolled price method (CUP) when other methods equally apply, and use of a traditional method when a traditional method and a transactional method are equally applicable.
  • Provide for the use of the median in the arm’s length range in making adjustments
  • Set out factors to consider when determining arm’s length prices in transactions involving intangible property.
  • Authorize the making of corresponding adjustments, provided certain conditions are met.
  • Prescribe rules for maintaining contemporaneous documentation.

Transfer pricing in practice — common trends for Africa-based companies

Despite the wide differences in the rate and state of adoption of international transfer pricing principles and practices, KPMG’s member firms in Africa have noted a number of common trends that are affecting international companies in the region.

  • New focus and enhanced scrutiny— The focus of transfer pricing has traditionally been on documentation activities. Revenue authorities are now focused on reviewing the intricate details of the intercompany transactions.
  • Identifying audit trends and triggers — Revenue authorities in Africa tend to initiate audits on all companies operating in particular sectors or certain economic groups to examine industry- or sector-specific anomalies, such as cash transactions and offshore activities. Service transactions are routinely challenged by revenue authorities, who increasingly look for proof that services and benefits were actually provided.
  • Exchange of information — Tax authorities are increasingly using exchange of information mechanisms to tackle illicit financial flows.
  • More tax authority collaboration — Collaboration between tax authorities has increased across Africa through initiatives and organizations such as Tax Inspectors without Borders and the African Tax Administration Forum, among others.3
  • Challenges identifying comparables — Difficulty in accessing African comparables for setting transfer prices remains a persistent issue for African entities, especially for unique and hard-to-value intangibles.
  • Narrower thin capitalization rules — In line with the OECD’s BEPS project, some countries are revising thin capitalization ratios, which may reduce the attractiveness of these countries as an investment destination. For example, Kenya’s draft legislation proposes to reduce the country’s accepted debt-to-equity ratio to 2:1. Some countries, such as Uganda, have adopted the OECD’s interest deductibility recommendations.
  • Rising tax controversy — Tax disputes are rapidly increasing in Africa as tax authorities step up their scrutiny of international companies operating in the region. Project and service companies are seen as high risk.
  • Review of bilateral treaties — The focus on BEPS is also prompting countries to review their tax treaties, especially for treaties signed with “tax haven” jurisdictions. Kenya’s tax treaty with Mauritius was recently voided by a high-court ruling in Kenya for failure to follow the due ratification process.
  • Advancing tax technology — Companies stand to improve their transfer pricing compliance by increasing their use of technology to effectively manage the transfer pricing lifecycle. Operationalizing transfer pricing with support from technology can help tax and transfer teams effectively manage intercompany activity and transfer pricing risks.

Takeaways for tax and transfer pricing leaders

With new transfer pricing regimes coming into force and increasing tax authority scrutiny of transfer pricing policies and compliance, international companies are focusing on operationalizing their transfer pricing as part of their business control measures. Companies based in Africa can help improve the efficiency, accuracy and value of their transfer pricing programs with these leading practices.

  • Set up a transfer pricing control framework to provide a structured approach for implementing and monitoring of transfer prices.
  • Establish an enterprise-wide transfer pricing strategy that is documented and owned by senior management.
  • Ensure the board of directors understands the effectiveness of the company’s transfer pricing documentation and how to communicate transfer pricing policies and their business reasons to all stakeholders.
  • Assign responsibilities to dedicated transfer pricing teams, while recognizing the responsibilities of others in the process (e.g. local management, finance, HR, legal).
  • Manage transfer pricing risk effectively by analyzing and understanding the specific risks of the company’s business model(s).
  • Monitor the possible impact of current and emerging tax administration priorities in areas such as:
    • distribution — marketing intangibles, value creation
    • manufacturing — product and process intangibles
    • service transactions — benefit test, routine vs non-routine, substance
    • financial transactions — control over risk, implicit support.

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