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African Tax Administration: Introduction
The African Tax Administration Forum (ATAF) has achieved a commendable milestone in advancing the interests of African countries in the global tax landscape. Following the outcome statement of the 11 July 2023 OECD/G20 Inclusive Framework (“IF”), which addressed tax challenges arising from the digitalization of the economy, the ATAF announced its success in gaining the inclusion of several provisions in the OECD Tax‘s Pillar One and Pillar Two rules. Although certain proposals were not adopted, the provisions secured by ATAF offer promising advancements to tackle tax challenges faced by African countries and promote equitable tax practices.
Pillar One Provisions:
- Amount A Rules: One of the major accomplishments of ATAF was the inclusion of several provisions in the Amount A rules. These provisions significantly increase the allocation of profits to the 27 IF members, particularly to lower-income countries. Notably, the allocation rules now consider tail-end sales, ensuring a fair distribution of profits and addressing concerns over profit shifting.
- Elective Dispute Resolution: ATAF and African countries successfully advocated for a binding dispute resolution mechanism for Amount A issues to be elective rather than mandatory. This approach allows African countries the flexibility to choose to undergo the dispute resolution process, promoting greater cooperation and understanding in resolving tax-related disputes.
- Digital Service Taxes Moratorium: In a critical move, African IF members have committed to refraining from imposing newly enacted digital service taxes and relevant measures between January 1 and December 31, 2024. However, this commitment is contingent on a sufficient number of jurisdictions signing the Amount A Multilateral Convention by the end of 2023. This provision balances the urgent need to tax digital firms generating profits within African territories while providing the necessary time for the MLC’s implementation, expected to take until 2026 or 2027.
- Country Risk Adjustments: ATAF’s negotiations successfully resulted in the inclusion of country risk adjustments in the Amount B pricing matrix. This adjustment benefits jurisdictions lacking financial data, enabling them to increase their global profit margins and assert their interests in international tax matters.
- Adoption of Transfer Pricing Guidelines: The Inclusive Framework’s commitment to incorporating the Amount B rules into the OECD transfer pricing guidelines by January 2024 is a significant development. Many African countries, including non-IF members, have expressed their intention to utilize these guidelines, standardizing transfer pricing practices and preventing profit shifting.
Pillar Two Provisions:
- Subject to Tax Rule (STTR): ATAF and African countries secured a significant achievement by including all payments relating to the provision of services within the scope of the STTR. This provision ensures that payments made for services are subject to taxation, contributing to the tax base for African countries.
- Priority of STTR: Another noteworthy accomplishment is the success in getting the STTR to apply with priority over the Global Anti-Base Erosion (GloBE) rules. This ensures that the STTR takes precedence over the Income Inclusion rule (IIR), Under-taxed Profit Rule (UTPR), or Domestic Minimum To-Up Tax, providing source taxation rights protection and bolstering defence against profit shifting.
The efforts of the African Tax Administration Forum have yielded significant strides in promoting fair and equitable international taxation for African countries. The inclusion of key provisions in the OECD’s Pillar One and Pillar Two rules showcases a positive step forward in addressing the tax challenges arising from digitalization. As African countries navigate the complex global tax landscape, these provisions will contribute to strengthening their tax systems and safeguarding their interests. With increased transparency, cooperation, and standardized guidelines, African countries are better positioned to participate in the evolving digital economy and ensure a fair and sustainable taxation framework.
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Olatunji Abdulrazaq CNA,ACTI
More About Author:
Olatunji is the founder Taxmobile.Online and Managing Partner/CEO of AOA Professional Services. Prior to this,Olatunji worked as Director,Tax & Regulatory Services at Nolands Nigeria Professional Services, Senior Manager -Tax,Regulatory & Advisory Services at Saffron Professional Services.
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