OPINION
Transfer pricing in
Africa – banking on
uncertainty
By Michael Hewson
Incorrect transfer pricing policies could affect the reputation of banks on the African continent.
A
convergence of trends
has created the ripest
environment for tax
controversy in years,
with increasing
demand being placed
on governments across Africa to meet
infrastructural and transformation
requirements. This has directly led to
a need for increased tax revenues.
Since 2011, a number of large global
multinational enterprises have been in
the spotlight for allegedly using complex
transfer pricing mechanisms to ensure
that a significant share of their profits is
earned in low tax jurisdictions and little
or, in some cases, no tax is paid in higher
tax jurisdictions.
Clearly transfer pricing has become more
than just a topic for tax departments to
deal with; it has also become very topical at
government level, in addition to impacting
on the reputation and financial position
of multinational enterprises. In fact, the
EY 2014 Tax Risk and Controversy Survey
concludes that 81% of all companies
surveyed agreed or strongly agreed that
tax risk and controversy will become more
important for their companies in the next
two years.
TRANSFER PRICING IN THE AFRICAN
BANKING SECTOR
When examining the multinational banks
operating in Africa (headquartered in
the UK, US, EU, South Africa, Nigeria or
UAE), EY has found that there is a higher
concentration of these banks in certain
countries, including Kenya, Egypt, Nigeria,
Ghana and the SADC countries, among
others. It stands to reason that government
(including revenue authorities) and labour
organisations are more likely to focus on
transfer pricing in the banking sector in
countries with the higher concentration
of banks.
Indeed, when looking at countries
on the continent that have specific and
detailed transfer pricing requirements,
a comparison reveals that, for the most
part, the countries with the highest
concentration of multinational banks
are the same countries that have specific
transfer pricing provisions. ▶
Edition 12 | BANKERSA
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2014/12/18 10:18 AM