Emerging Transfer Pricing Trends in Africa: Insights from Dr. Daniel Erasmus at the 13th Annual Africa TP Summit
Dr Daniel N Erasmus (PhD USTCP Int'l Tax Attorney)
International Tax Litigation Attorney | Transfer Pricing Specialist | Tax Academic
First Published on: https://www.taxriskmanagement.com/transfer-pricing-trends-africa-13th-africa-tp-summit/
On September 13, 2024, Dr. Daniel N Erasmus delivered the opening address at the 13th Annual Africa Transfer Pricing Summit in Cape Town, South Africa. His address, rich with insights and practical advice, focused on emerging trends in transfer pricing across Africa and other developing regions, drawn from his extensive experience as an advocate in international tax disputes.
Dr. Erasmus began by acknowledging his connection to the African tax landscape, despite residing in the United States, where he continues to work on numerous African tax cases, including landmark transfer pricing disputes. The central case discussed was the?ABD case, which involved intellectual property licensing from a South African parent company to subsidiaries across Africa and the Middle East. The taxpayer argued for a 1% royalty on the use of their brand, a point contested by SARS, leading to years of legal wrangling.
The key takeaway from this case, Dr. Erasmus noted, is the complexity of modern transfer pricing litigation, particularly when dealing with intellectual property. He emphasized the importance of having a robust defense, including thorough documentation and internal comparables (CUPs), to counter challenges from tax authorities. The ABD case is ongoing, but it has already shaped emerging trends in transfer pricing in Africa.
Dr. Erasmus highlighted the growing trend of tax authorities, such as SARS, shifting their focus from traditional methodologies to new, more aggressive approaches, such as the?willingness-to-pay method. This shift often catches taxpayers off-guard, as seen when SARS changed their position just one month before the trial. The challenges faced by taxpayers in such cases underline the importance of?tax steering committees.
He stressed the value of creating tax steering committees within multinational corporations (MNCs) to monitor and manage tax risks regularly. These committees, ideally led by a litigation lawyer to ensure attorney-client privilege, play a crucial role in preparing for audits and trials, ensuring that sensitive discussions remain protected.
Beyond transfer pricing, Dr. Erasmus touched on broader international tax issues that intersect with TP, including the?digital economy. He mentioned that countries like?Tanzania?are adopting aggressive stances, attempting to tax foreign companies based on local economic activity, even if the companies lack a permanent establishment in the country. This exemplifies the global trend of revenue authorities seeking to maximize tax revenues from MNCs through expanded interpretations of tax laws.
He also shared his experience from?Mauritius, where authorities are disallowing interest deductions on capital loans, further complicating the tax landscape for corporations operating internationally. Dr. Erasmus pointed out that navigating these challenges requires not only deep knowledge of local tax laws but also an understanding of international treaties, such as?double tax agreements?(DTAs) and?investment treaties.
A key recommendation from Dr. Erasmus was the need for companies to be proactive in managing their tax risks. By understanding the legal framework in each jurisdiction and working closely with experienced tax litigators, companies can mitigate exposure to hefty tax assessments and potential penalties. He emphasized that taxpayers should not shy away from engaging directly with tax authorities, as open dialogue can sometimes resolve disputes without the need for lengthy court proceedings.
The address concluded with a discussion on the future of transfer pricing in Africa. Dr. Erasmus observed that more African countries are ramping up their transfer pricing enforcement efforts, often with guidance from international organizations like the?OECD. While this represents a positive step toward harmonized tax policies, it also means that MNCs must be more vigilant in their compliance efforts. He identified?intellectual property,?financial transactions, and?management fees?as key areas of focus for African tax authorities moving forward.
Dr. Erasmus’ insights provide a valuable roadmap for multinationals operating in Africa and other developing regions. As tax authorities continue to evolve their strategies, staying ahead of emerging trends in transfer pricing will be essential for minimizing risks and ensuring long-term success in these markets.
POSTGRADUATE PROGRAMMES IN INTERNATIONAL TAX & TRANSFER PRICING
These topics are dealt with in depth in the following Postgraduate Programmes offered by Middlesex University in partnership with the Academy of Tax Law and Informa Connect:
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The Tax Risk Management programme is meticulously designed to equip professionals with the expertise required to navigate the complexities of tax risk and dispute resolution in a global business environment.
This programme offers a comprehensive curriculum that delves deep into identifying, assessing, and mitigating tax risks while providing practical skills for effective tax governance. Participants will explore key areas such as tax risk assessment, transfer pricing challenges for multinational enterprises, and strategies for managing tax audits and disputes.
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Postgraduate Programmes in Transfer Pricing:
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Postgraduate Programmes in International Taxation:
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