Africa is gearing up to fight base erosion and profit shifting

The African continent boasts a beautiful and diverse array of countries offering a wide range of valuable natural and human resources to the world economy. The past decade has seen significant foreign investments in African jurisdictions, ranging from massive investments in Mozambique’s gas reserves to tech companies capitalising on the technical excellence offered by software engineers in South Africa.

As multinational enterprises (“MNEs”) tap into the opportunities presented by Africa, the need to define and enforce appropriate Transfer Pricing (“TP”) regimes also increases. During the past decade, most African jurisdictions have therefore either introduced or enhanced their TP regimes to ensure that they are able to tax the share of profits, as realised by these MNEs, which are attributable to their jurisdictions.  

Base erosion and profit shifting (“BEPS”) forms part of a larger project of the OECD to curb BEPS on a global scale. Although only about half of all African countries constitute members of the OECD’s Inclusive Framework, many non-member countries, such as South Africa, have also implemented the minimum standards recommended by the OECD in respect of BEPS.

This article highlights the extent to which the minimum standards have been implemented by African countries, and provides an update on the most recent changes and news from the African continent. Country-by-country reporting.

South Africa, Egypt, Gabon, Mauritius, Côte d’Ivoire and Nigeria have all implemented legislation or regulations in respect of Country-by-Country Reporting (“CbCR”). Kenya is expected to have CbCR rules implemented soon, whilst Botswana, Namibia, Rwanda, Uganda and Zambia have all shown their intention to do so.

Master file and local file

A substantial number of African jurisdictions have also introduced regulations which set out the content requirements of TP documentation, with these requirements largely being in line with the local file and master file requirements set out in the OECD guidelines.

Botswana only recently issued its TP regulations (with effect from 1 July 2019),  reflecting the master file and local file requirements as recommended by the OECD.

On 2 November 2020,Ghana also introduced new TP regulations which reflect the OECD guidelines whilst the preceding 2012  regulations only provided for a local file.  

In addition to Botswana and Ghana, South Africa, Egypt, Gabon, Nigeria and Zambia have implemented the master file and local file requirements as recommended by the OECD.Kenya, Namibia, Rwanda and Uganda have also shown an intention to implement the master file and local file requirements recommended by the OECD.TP disputes

An increase in TP disputes and cases have also been seen as more and more African jurisdictions are putting legislation and regulations in place to combat BEPS.


On 9 February 2020, judgement was delivered by the Nigerian Tax Appeal Tribunal in the case of Prime Plastichem Nigeria Limited v Federal Inland Revenue Service. This case is regarded as Nigeria’s first TP case and considered whether the appropriate TP method was applied in respect of transactions with connected person.

The Tribunal ruled against the taxpayer noting that the method applied by the Nigerian Revenue Service, which has the power to disregard the method adopted by a taxpayer in terms of the Nigerian TP regulations, was the appropriate one to apply given the circumstances.

The case illustrates the importance of properly recording the reasons for applying a specific TP method and the reason why other methods have been rejected. The case also reiterates that the burden of proof in respect of the arm‘s length nature of a controlled transaction is on the taxpayer and that the taxpayer consequently has to prove that its transactions satisfies the arm’s length principle.


Another important African TP case is that of Nestlé Zambia Trading Limited v Zambia Revenue Authority which was heard on 28 March 2019. The case dealt, amongst others, with the question of whether the Revenue Authority incorrectly characterised Nestlé Zambia as a limited risk distributor for TP purposes.

The taxpayer succeeded on all grounds of appeal, except for the latter, in that the Tribunal found that the entity was correctly characterised by the Revenue Authority. The case serves as a reminder that the business facts and circumstances have to be clearly evidenced by a taxpayer to support the TP classification and pricing of related party transactions.

In a more recent case, delivered in May 2020, the Zambian Revenue Authority won a landmark case against Mopani Copper Mining plc in the Supreme Court. The dispute related to the pricing of copper which was sold by the Zambian entity to its shareholder, Glencore International AG in Switzerland. In this case, the taxpayer could not adequately explain why copper was being sold to its related party at a significantly lower price than to third parties. As a result the court ruled in favour of the revenue authority in respect of the additional tax imposed by it on the taxpayer.  

Although this landmark victory and the aggressive approach by the Zambian revenue authority sends a strong message that African tax authorities are able to take on complicated TP matters, it should be noted that Glencore has since decided to sell its stake in the Zambian entity. The aggressiveness of revenue authorities when tackling these matters should consequently also be considered against the benefit of maintaining foreign investments. Interestingly, the Australian Federal Court ruled in favour of Glencore in a recent court case which was based on a similar set of circumstances.


It is clear that the African continent is gearing up to fight the exploitation of its valuable resources through the implementation of the OECD’s recommendations. It however remains a balancing act to attract foreign investment, whilst ensuring that the profits resulting from such investment are appropriately taxed in-country. Given the impact of Covid-19 and the shortfalls in revenue collections experienced by revenue authorities around the globe, one can only be hopeful that the African continent would be able to master this balancing act.