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AFRICA: Negotiating Tax Affairs with Local Revenue Authorities


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Multinational companies doing business in Africa need to consider the most efficient way of negotiating their tax affairs with the revenue authorities - “effective negotiations can mean the difference between success and failure”, says professional Services firm PwC.
“Africa offers great potential in terms of investment, but multinationals need to strategise business deals carefully in order to reduce their tax burden,” says Cor Kraamwinkel, an Associate Director in PwC’s Corporate International Tax Division.
Kraamwinkel points out African jurisdictions are typically known for their inconsistent tax rates. “There is no harmony in tax rates across the continent. The corporate tax rates are high. There are also high withholding tax rates. This places significant challenges on multinationals wanting to do business and cross-border transactions in Africa.”

Furthermore, the double taxation treaty network in Africa is scattered, with no single jurisdiction having treaties with all of Africa. The Value-Added Taxation (VAT) systems are also inconsistent in that in some jurisdictions taxpayers are unable to claim an input VAT. “The tax authorities are also renowned for being suspicious of foreign multinationals wanting to enter into cross-border activities in the African continent.”

Kraamwinkel says that multinational companies wanting to invest or enter into cross-border transactions in Africa, should consider the most effective solution and whether it’s possible to negotiate with the African tax authorities about possible tax treatments, the interpretation of various laws, and the resolution of various disputes.

The African Tax Administration Forum (ATAF) has recently stated in media reports, that it is aware of complaints by multinationals that have had dealings with African tax officials who lack an understanding of complex and technical legislation. As a result, ATAF has trained more than 400 tax officials on the continent in various aspects of tax, including technical training programmes.

Kraamwinkel says multinational companies usually find themselves in a difficult position while making business decisions as the tax laws may not be clear as to the tax treatment of complex cross border business transactions. In certain jurisdictions taxpayers have the opportunity to see the tax authority’s interpretation of the law by way of advance tax rulings. “There are wide differences in Africa regarding advance rulings. Furthermore, companies should not assume that they can get a tax ruling in any country, as some jurisdictions in Africa do not have advance tax ruling systems in place.”

Where disputes do arise, certain African countries do allow tax disputes to be resolved by way of an Alternative Dispute Resolution (ADR) process, thereby avoiding the need to approach the courts. South Africa has offered this route for several years now to taxpayers. ADR can either be initiated by the taxpayer or the South African Revenue Service (SARS).
Kraamwinkel says that some jurisdictions in Africa may be lenient towards taxpayers who acknowledge they have made a mistake and pro-actively approach revenue to correct past errors. In such cases, the tax authorities are prepared to waive penalties for late payments of taxes. However many jurisdictions, such as Uganda, are often not willing to entertain the waiver of tax penalties.

A number of African jurisdictions offer tax incentives to attract and retain greater levels of foreign direct investment. However, Kraamwinkel says there is a move nowadays towards codifying tax incentives and the doing away of unregulated ‘tax holidays’ or other incentives, particularly in the wake of the recent economic uncertainty. He says that this is also a move in line with international norms and efforts to tidy up the tax laws and make them more regulated. “Multinationals need to be careful when entering into tax incentive negotiations and other deals with African jurisdictions. If they reach an agreement with government officials that is not supported by law, they may find that a couple of years down the line such arrangements are challenged based on the fact that relevant officials did not have authority to enter into the aforesaid transactions. This could result in the organisation becoming liable for hefty fines and penalties due to failing to comply with the applicable tax laws.

“Businesses must at all times be aware of the law in the jurisdiction in which they are negotiating deals and the legal basis of tax incentives and ‘tax holidays’.”
Lobbying to influence the tax laws on the African continent does take place in varying degrees, says Kraamwinkel. “Lobbying should not be viewed as inherently bad, but rather as a bridge between policy makers and the practical business world. It may be an invaluable tool to taxpayers and government to ensure the continues development of tax laws in Africa. Some countries allow for formal input from taxpayers on tax policy matters, while others have lobbying done on an informal basis.”

Lobbying involves extensive research, planning, organising and most importantly relationships – “it’s about who you ultimately know and are connected to”. He warns that the tax authorities in some African jurisdictions tend to remain cautious and suspicious of taxpayers, particularly foreign multinationals carrying out large business transactions. “Multinational companies need to know who to speak to in government departments. Having a good track record is also vital and can make a difference between the success and failure of a deal.”

Kraamwinkel will chair a plenary discussion at PwC’s 15th African Tax and Business Symposium in Mozambique this week, regarding the most effective solution and negotiation with the tax authorities in Africa for multinationals doing business in Africa.


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