Factors Militating against the Efficacy of the Mutual Agreement Procedure: A Comparison between South Africa, Kenya, Uganda and Ghana

Abstract

The effective resolution of transfer pricing disputes has been identified as one of the primary challenges to eliminate double taxation and/or double non-taxation as well as to enhance the free flow of trade and investment. This article investigates the unique challenges faced by selected African countries, including South Africa, Kenya, Uganda and Ghana, which militate against the use of the mutual agreement procedure (MAP) as a preferred Organisation for Economic Co-operation and Development (OECD) transfer pricing dispute resolution mechanism. The research used a qualitative legal review of existing literature in the selected regimes by comparing the domestic tax law framework in these countries. Transfer pricing manipulation is a significant source of illicit financial flows of capital as identified in the research by Global Financial Integrity on Africa, which drew from Ghana, Kenya and Uganda as case studies. South Africa and Kenya are considered as the gateways to Africa with many multinational enterprises (MNEs) taking residence in them before expanding to the rest of Africa. The article focuses specifically on a number of guidelines that should be in place for the effective use of the MAP in the resolution of tax treaty disputes. It also demonstrates how the absence of guidelines, or the lack of clarity thereof, discourages both taxpayers and revenue authorities from effectively using the MAP to resolve transfer pricing disputes. The absence of guidelines has resulted in many aggrieved taxpayers opting to approach the courts as opposed to using the MAP as a mechanism to resolve tax treaty disputes. Furthermore, it highlights the importance of how resolved transfer pricing disputes eliminates double taxation. The article recommends that the same benefits enjoyed under the domestic dispute resolution process be incorporated into the MAP. It also makes recommendations on how jurisdictions with a low tax treaty network can address this challenge to enable them to effectively use the MAP as a tax treaty dispute resolution.