The launch of a “Toolkit for Transfer Pricing Risk Assessment in the African Mining Industry” by the African Tax Administration Forum (ATAF) at its “3rd International Conference on Tax in Africa (ICTA)” which took place in Abuja in September 2017, signals the next wave of intensified effort by tax administrations in Africa in the area of transfer pricing. The toolkit is the result of a joint effort by ATAF and the German Federal Ministry for Economic Cooperation and Development.
Risk assessment by tax administrations is intended to ensure a more targeted approach to audit case selection. Experienced tax administrations have been applying sophisticated risk assessment procedures for years. It is well known that the South African Revenue Services has an entire unit dedicated to risk assessment across various tax types. In the effort to improve tax collections, risk assessment remains a critical component of selecting cases for audit that are likely to have the highest tax yield.
This step by the ATAF demonstrates the continuing political will by tax administrations in Africa to tackle Base Erosion and Profit Shifting and Illicit Financial Flows, where transfer pricing is perceived as being a key culprit.
The Toolkit is available on the ATAF website and contains a step-by-step guide to assessing risk, culminating in a risk rating. Having developed such a toolkit, it is also recognised that risk assessment does not exclude the need for specialist judgement and discretion.
This effort by the ATAF is one of several to promote effective tax administrations in Africa. Other measures to aid in the enforcement of transfer pricing include the development of:
- robust legislation to effect access to information;
- specific tax return filing to aid in data analytics;
- e-filing that can aid automated risk assessment;
- training and after-support to build audit capacity;
- governance processes to ensure due process; and
- agreements with database service providers.
As a major emerging market, Africa as a continent has much to offer and the above efforts are both welcome and encouraging.
https://www.ataftax.org/en/
By Nishana Gosai, Senior Executive: Transfer Pricing, Baker McKenzie Johannesburg