Transfer pricing - Ethiopia

Global transfer pricing guide

01 Jan 2025 2 min read

This publication provides a high-level overview of Ethiopia's transfer pricing rules and outlines who to contact for expert guidance in this area.
Contents

Introduction to transfer pricing in Ethiopia

  • Transactions between related parties is expected to be carried out based on arm’s length principle.

  • The Federal income Tax Proclamation No.979/2016 article 79 allows the Ministry of Revenue in respect of any transaction that is not an arm’s length to distribute, apportion, or allocate income, gains, deductions, losses, or tax credits between the parties to the transaction as is necessary to reflect the income, gains, deductions, losses, or credits that would have been realized in an arm’s length transaction.

  • This directive broadly accepts Organization for Economic Cooperation and Development (OECD) Transfer pricing guidelines for Multinational Enterprises and Tax administrations as relevant sources of interpretation.

  • However, While the OECD Transfer Pricing Guidelines are considered as relevant sources of interpretation, the Tax laws take precedence in case of any conflicts or discrepancies. 

  • Ethiopia’s TP legislation places the onus on taxpayers to self- assess their TP positions and to be able to demonstrate the arm’s length price applied in the intragroup transactions.

Transfer pricing documentation

  • The tax law requires entities to provide details of transactions with related persons during a tax year with the corporate income tax return for the year.

  • The transfer pricing rules in Ethiopia is only applicable for related parties having an annual turnover of more than ETB 500,000.00.

  • Documentation shall be provided to the Tax Authority within 45 days of the written request being duly issued by the Tax Authority.

  • No master file requirements in place yet.

  • Transactions conducted with related parties that operate in low tax jurisdictions (tax paradise).

  • Persistent losses in any entity can be a raison of a full tax audit with a risk of potential significant tax adjustment.

  • An entity is required to maintain transfer pricing documentation to verify transactions are consistent with the arm’s length principle. If an entity fails to do so, the entity will be liable for 20% of the tax payable as a penalty for non- compliance. However, if no tax is payable for the period, the penalty will be ETB 20,000.

Economic analysis and how to demonstrate an arm’s length result

  • Ethiopia’s TP legislation is placing the onus on taxpayers to self- assess their TP positions and to be able to demonstrate the arm’s length price applied in the intragroup transactions.

Advance Pricing Agreements (APAs), dispute avoidance and resolution

  • The transfer pricing directive 981/2024 allows taxpayers to request an advance transfer pricing arrangement with the tax authority to determine appropriate set of criteria (e.g. method, comparable…) for the determination of arm’s length conditions over a fixed period. 

  • The arrangement could minimize transfer pricing disputes between taxpayers and the authority; however, the commencement of this practice is expected to be fixed by the Ministry of Finance circular.

Exemptions

  • Generally, no exemptions from a TP perspective.

Related developments

  • No specific TP provisions in relation to Covid-19. 

Contact us

For further information on transfer pricing in Ethiopia please contact:

Fitsum Haile

T: +251 115 53 6364

E:  fitsum.haile@et.gt.com

TAGS