From Graphene Economics

The 2021 Graphene Economics report on cross-border tax in Africa explores key trends for transfer pricing professionals and revenue authorities on the continent for 2022 and beyond.

Like many other aspects of life, cross-border transactions (and therefore taxation) have been affected by issues like COVID-19 supply chain disruptions and rapid digitisation. Beyond pandemic-driven challenges, transfer pricing (TP) is also changing in the face of the global movement towards increased tax transparency, increasing business complexity and an uptick in tax controversy, among other things.

A new report by specialist African TP advisory firm, Graphene Economics, seeks to explore some of these themes, including information derived from its inaugural annual Transfer Pricing Matters Survey, the firm’s own experiences in cross-border taxation in Africa, and insights from a range of highly regarded external contributors.

“Given the niche nature of the TP industry, specifically within Africa, and the fact that this was one of the first surveys of its kind in the local market (to our knowledge), we were expecting a relatively small sample size,” says Michael Hewson, founder and director of Graphene Economics. “However, we had a total of 71 respondents, comprising individuals from 15 countries, and representatives from the full range of stakeholders, from multinational entities (MNEs) to revenue authorities and tax consulting firms, among others. We think this is a great sample for the first survey and we look forward to growing the sample size and being able to analyse historical data in the years to come.”

Hewson says the survey yielded several interesting findings, including:

  1. There is a (an expected) correlation between MNE size and TP team size. However, for businesses of similar size, European MNEs tended to have larger TP teams than South African MNEs.
  2. Representatives from MNEs listed the three most significant TP trends as 1) more frequent and rigorous audits, 2) global tax reform, 3) adoption of technology. However, when comparing service-based organisations and goods-based organisations, there is a notable difference in which trends are affecting MNEs.
  3. In TP advisory firms and tax consulting businesses, respondents generally rated TP as a high priority and felt this was appropriate. On the other hand, revenue authority representatives surveyed rated TP as a high priority, but still felt that it was not appropriately prioritised. 
  4. Various technology solutions have been developed to assist with increasing the efficiency and accuracy of collection, sorting or validation of data. However, only 18% of respondents said they are currently using any technology other than Microsoft Excel and only 3% have internally developed technology suited to their needs.

In its report, Cross-border tax in Africa: Transparency, technology and trends – a look at what 2022 may hold, Graphene Economics unpacks some of these findings, as well as what they mean for the industry, tax practitioners and revenue authorities.

The Graphene Economics team explores the prevailing issue of digitisation, including taxation strategies that different countries will pursue with regards to digital services; the adoption of technology within revenue authorities, firms and tax practices; and the impact of digitisation on TP analyses.

Other themes under the spotlight in the report are tax transparency and whether the fact that Country-by-Country Reporting data will likely become publicly available will affect MNEs, as well as Africa-specific business and taxation challenges, and notable recent cross-border tax developments, such as the transition away from LIBOR.

Including insights from Prof Keith Engel, Chief Executive of SA Institute of Tax Professionals (SAIT), Lutando Mvovo, Executive Head: International Tax at Vodacom, and Adrian Maasch, Transfer Pricing Advisory at Macfarlanes, among others, the report aims to give an in-depth overview of the state of TP in Africa and the outlook for the future.

“The tax environment is changing more rapidly than in previous decades, and TP and related issues are likely to remain priorities for revenue authorities on the African continent for the foreseeable future,” says Hewson. “The implication for MNEs is that the role of the tax function will become increasingly significant in managing business risk. We hope that this report will assist in identifying key considerations for business and revenue authorities alike.”