The Transfer Pricing Environment in Africa: what multinationals need to know


Africa’s transfer pricing landscape has changed more in the past five years than in the previous twenty. That was the clear message from LCN’s recent webinar with Cabrini McCarrick and Rajnish Singh of Regan Van Rooy, international tax advisers based in South Africa, Mauritius, Ireland and the UK.

For many multinationals, Africa still feels like a peripheral part of the global tax footprint. But as Cabrini put it during the session, “Transfer pricing is considered in Africa as the biggest tax risk and also the biggest pot of money for the tax authorities.” The combination of new legislation, aggressive enforcement, and increasingly sophisticated tax authorities means that assumptions based on OECD-style environments simply no longer hold.

Below is a distillation of the key insights from the discussion.

1. A Rapidly Maturing TP Framework Across the Continent

Almost every African jurisdiction has either introduced transfer pricing rules for the first time or significantly upgraded them following the OECD’s BEPS project. As Cabrini noted, “Nearly every country in Africa either significantly updated its transfer pricing legislation or took in new transfer pricing legislation for the first time.”

This has triggered:

• Dedicated TP units within tax authorities
• Heavy investment in training, including support from the OECD, HMRC, Scandinavian tax authorities and ATAF
• A surge in audits, including the first wave of cases reaching Supreme Courts

The result is a continent-wide shift from “developing” to assertive and increasingly sophisticated TP enforcement.

2. Compliance Thresholds are Tiny but Penalties are Not

One of the biggest misconceptions is that only large transactions matter. In reality, African thresholds for local files and master files are extremely low.

• Some countries require documentation for transactions as small as USD 20,000
• Many require submission, not just preparation, of TP files and intercompany agreements
• Deadlines for providing documentation during an audit can be as short as 7 days

Failure to comply is expensive. As Cabrini highlighted, “In some countries it’s 16,000 rand a month. In others such as Zambia, it’s up to USD 1.2 million.”

These penalties apply even if the underlying TP is perfect.

3. Domestic TP Rules and NonConnected Party Rules are Common

Unlike most OECD jurisdictions, several African countries apply TP rules to:

• Domestic related party transactions
• Dealings with unrelated parties in low-tax jurisdictions

This can catch out groups who assume TP only applies crossborder or only to connected parties.

4. Exchange Controls and TP are Now Intertwined

In many countries, you cannot repatriate funds without TP support.

South Africa is the clearest example: “For every SARB application… you have to have transfer pricing documentation ready,” Cabrini explained.

This applies even where TP thresholds are not met. Central banks increasingly require independent TP sign-off before processing payments.

5. Substance and Alignment is the New Battleground

African tax authorities are scrutinising whether the economic substance matches the legal form particularly for:

• IP ownership
• Limitedrisk models
• Centralised service hubs
• Mauritian holding or IP structures

This is driving a wave of restructurings, including senior executives relocating to Mauritius to create genuine management substance.

6. Case Law is Emerging

For the first time, African TP disputes are producing meaningful judicial precedent.

Examples discussed included:

• South Africa’s ABD case (royalty benchmarking and IP definition)
• Zambia’s Nestlé case (limited-risk distributor characterisation)
• Mauritius cases on interest-free loans and residual profit split
• Nigeria and Kenya cases on management fees and loss-making entities

A recurring theme is the burden of proof. Courts have repeatedly held that the taxpayer, rather than the tax authority, must substantiate the arm’s-length nature of transactions.

As Cabrini summarised: “Lack of documentation and lack of evidence came up in every one of these cases.”

7. Tax Authorities are Sharing Information Across Borders

Although not always formally, African tax authorities frequently exchange intelligence. A model challenged in Zambia may trigger audits in Kenya, Tanzania or Nigeria.

This means exposures must be assessed holistically, not entity by entity.

8. Benchmarking must be Global, not Regional

African tax authorities rarely accept:

• European only benchmarking
• Group-wide benchmarking
• Databases other than Bureau van Dijk / Orbis

Raj described a recent audit where authorities analysed raw data at a level of granularity that many comparables simply do not provide.

9. Intercompany Agreements are a Key Part of Audit Defence

As Cabrini put it:

“People have been so often caught out on what’s in their legal agreements versus what’s in their local file versus what happens on the ground … the first thing a tax authority will look to do and say, your legal agreement says something totally different than what your local file says. And they’ll use that the way they want. If they like what it says in your legal agreement, of course, the legal agreement is golden. If they like what it says in another place, that is so. It’s absolutely critical. And in many jurisdictions, you actually have to submit the legal agreements with your local file.”

10. The Compound Effect of TP Adjustments, Withholding Taxes, Penalties and Interest can Dramatically Increase Risk

Transfer pricing risks cannot be viewed in isolation. One trend which Cabrini noted was tax administrations deeming interest on inbound loans – which is counter-intuitive, because on the face of it, a TP adjustment would reduce local profits in the relevant African jurisdiction. But a tactic used by tax authorities has been to deem an arm’s length rate of interest and claim withholding tax on that.

The compound effect of TP penalties, withholding taxes and interest can take what appears to be zero risk to one which is extremely significant for the group.

11. Practical Steps for Multinationals

The speakers emphasised several immediate actions:

a. Conduct a high-level TP and intercompany agreements health check

This should cover:

• Existing intercompany agreements
• Compliance obligations per country
• Penalties
• Submission requirements
• Domestic TP rules
• Exchange control interactions

b. Strengthen documentation

Light-touch documentation is not sufficient in Africa. Authorities expect:

• Agreements
• Detailed functional analyses
• Transactionbytransaction support
• Evidence of substance
• Alignments between TP files, legal agreements, financials and tax returns

c. Review legal agreements for alignment

Authorities routinely compare agreements with TP files and actual conduct. Misalignment is a major audit trigger.

d. Manage information carefully during audits

As Cabrini warned, “Any bit of data we provide needs to be scrutinised… what they will ask is endless.”

e. Revisit risk characterisation and Incoterms

Raj highlighted that Incoterms often contradict claimed limited-risk profiles—an easy win for auditors.

12. Looking Ahead: BEPS 2.0 and Amount B

Africa is already adapting to global reforms:

• Pillar Two is prompting a rethink of tax incentives
• Amount B may reshape distribution models
• Commodity pricing rules continue to tighten

More disputes and more litigation are inevitable as authorities gain confidence.

Conclusion: Africa Requires Its Own TP Strategy

The overarching message from the webinar was that Africa cannot be treated as an afterthought.

The rational starting point, then, is a high-level assessment of compliance status, agreements and risk exposure across all African jurisdictions in which a group operates. Only then can multinationals take proportionate, defensible action.

Or, as Cabrini put it more bluntly: “You need to know what you don’t know and ensure you do what you need to do.”