Lencho, Taddese (PhD)Adugna, Tariku2019-09-262023-11-082019-09-262023-11-082019-06http://etd.aau.edu.et/handle/123456789/19209Ethiopia, 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.enLawThesis