Its cornerstone is the arm’s length principle, essential for cross-border transactions, encompassing entities with annual turnovers exceeding ETB 500,000.
The documentation requirements are rigorous, underscoring the need to substantiate compliance with the arm’s length principle to avoid a substantial penalty of Birr 100,000. The directive outlines specific transfer pricing methods while stressing the importance of considering various factors before selecting the appropriate one. Addressing compliance, however, proves challenging amidst the absence of pertinent market data.
Article 79 of the Federal Income Tax Proclamation 979/2016 empowers tax authorities to sensibly allocate income among related parties, adding a layer of complexity to the compliance landscape. While the implementation of the transfer pricing directive is in its infancy, the tax office is actively enhancing its capacity for consistent enforcement. This directive also delves into the critical factors influencing transaction comparability, shedding light on the intricate process of formulating comprehensive transfer pricing.
For a comprehensive overview of the transfer pricing landscape in African countries and detailed insights, download the full Grant Thornton Africa Transfer Pricing Landscape Guide 2023/2024 to gain a deeper understanding of transfer pricing dynamics in the region.
