The Application of Ethiopian Transfer Pricing Rules on Multinational Enterprise: Consistency of the Practice with the Ethiopian Transfer Pricing Rules.
No Thumbnail Available
Date
2019-06
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
Addis Ababa University
Abstract
Ethiopia, like the rest of the world, in an effort to protect its tax base, has enacted a transfer
pricing directive requiring, among other things, that inter-company transactions be conducted
at arm’s length price & to direct and adjust profits in cases where transactions between related
persons differed from those between unrelated persons as well as to provide a legal basis for
Advance Pricing Agreement to be entered into between a taxpayer and the tax collecting organ.
However, due to the very nature of TP transactions, lack of comparable data and lack of
administrative capacity, the determination of the correct arm’s length price has remained a
major challenge in Ethiopia, not only for the taxpayers, but for the tax authority as well.
The main objective of this paper is to provide an overview of the newly adopted transfer pricing
directive as well as the legal and institutional framework for TP Administration in Ethiopia
and to analyze the practical application of transfer pricing rule on MNEs. So, the paper
commences by briefly discussing the salient features of Transfer pricing of MNEs in general
and Ethiopian TP Directive in particular. The paper then devoted to examine the practical
application of transfer pricing rule on MNEs and analysis its consistence with the directives.
In addition, the paper critically evaluates the existing institutional framework for the
implementation of transfer pricing regulations.
The key findings made includes the fact that the actual implementation of the directive is far
from realization due to different factors such as lack of administrative capacity to conduct
effective and efficient audit; lack of well-equipped and qualified experts; lack of sufficient and
reliable comparable data; lack of advanced communication technology and information
exchange mechanisms as well as lack of effective organizational structures and etc. The paper
also highlights some issues that need to be strengthen and future challenges in implementing
the regulations. Some recommendations are also provided at the end of the paper to the tax
authority and policy makers to enhance and improve the administration of TP on MNEs
In conclusion, the study establishes that the current legal and institutional framework for
transfer pricing in Ethiopia is far from practical application, inadequate and in need of
reforms. In this regard, recommendations are made for strengthening the legal, policy and
institutional framework for TP in Ethiopian in line with developing countries best practices.
Description
Keywords
Law