Africa Tax in Brief

AFRICA: Position of various countries on signature of the Multilateral Instrument to Implement Subject to Tax Rule (STTR MLI)

Following the signing of the Multilateral Convention to Facilitate the Implementation of the Pillar Two Subject to Tax Rule (STTR MLI) by Benin, Cabo Verde and the Democratic Republic of the Congo (“DRC”) on 19 September 2024 the OECD released their provisional lists of expected Notifications (“STTR MLI Position”), pursuant to article 10(1) of the STTR MLI. The STTR MLI Position of these countries will be confirmed upon deposit of the instrument of ratification, acceptance or approval, pursuant to article 10(3) of the STTR MLI.

DEMOCRATIC REPUBLIC OF THE CONGO: 2025 Finance Bill submitted to the National Assembly

Following the release of the budget timelines earlier this year, the following bills have been submitted to the National Assembly on schedule:

the draft Finance Bill for the 2025 financial year;
the Accountability Bill for financial year 2024; and
the Budget Amendment Bill 2024.

The draft bills have not yet been made public.

DEMOCRATIC REPUBLIC OF THE CONGO: Implementation of standard VAT invoices and electronic fiscal devices initiated

Through official communication n°01/037/DGI/DG/DESCOM/PPM/CK/2024 of 5 September 2024, the Directorate General of Taxes has informed the general public, economic operators, and taxable persons subject to VAT that the first phase of the introduction of standardised invoices and electronic fiscal devices established by articles 59ter and 59quater of the VAT Law will be launched in September 2024.

The first phase will only concern businesses that have been selected according to pre-established criteria to use the dematerialized electronic fiscal devices, i.e. "e-UF" for businesses without invoicing software, and "e-MCF" for businesses with invoicing software.

KENYA: National Assembly approves the Multilateral Instrument

The Kenyan National Assembly approved the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (“MLI”) on 13 May 2024. Kenya submitted its provisional MLI position at the time of signature, listing its reservations and notifications and including 14 tax treaties that it wishes to be covered by the MLI.

LIBERIA: Instrument of ratification for the African Continental Free Trade Area Agreement deposited

On 31 July 2024, Liberia deposited its instrument of ratification for the African Continental Free Trade Area Agreement (“AfCFTA”) as the 48^th country to do so. The AfCFTA has been signed by 54 countries to date, entered into force on 30 May 2019, and became effective on 1 January 2021.

KENYA: Tax Appeals Tribunal rules that adjustments for other costs associated with transaction are required under Resale Price Method for arm's length pricing

On 6 September 2024, the Kenyan Tax Appeal Tribunal (“TAT”), in the appeal case of Cummins Car & General Limited v. Commissioner of Legal Services and Board Coordination (No. E450 OF 2023), issued a ruling emphasizing among others, that adjustments for other costs associated with a transaction are required under a resale price method when establishing an arm's length price on related party transactions.

Cummins Car & General Limited (“CCG Kenya”) is a wholly-owned subsidiary of Cummins Car and General Holding Limited (“CCG Holdings”), a company incorporated in Mauritius. CCG Holdings was formed as a joint venture between CMI Africa Holding BV (“CMI”), a company incorporated in the Netherlands and Car & General Trading Limited (“CGTL”), a company incorporated in Kenya. CCG is incorporated in Kenya and conducts the business of the sale of power generators, commercial engines and their associated spare parts. These products were sourced from CMI Africa affiliates in India and the United Kingdom for resale to third parties in Kenya.

Prior to the joint venture arrangement between CGTL Kenya and CMI Africa affiliates, CGTL Kenya purchased similar products from CMI affiliates to which it was not a related party at the time. During the transactions, the comparable uncontrolled price (“CUP”) method was selected as the most appropriate method to determine the arm's length price applicable to purchases. After the establishment of the joint venture under CCG Holdings, CCG Kenya applied the CUP method to determine arm's length when making purchases from CMI Africa affiliates in India and the UK for the year of income 2017.

In addition, CCG Kenya applied a mark-up of 5% in pricing services it offered to CCG Holdings in Mauritius in respect of: placing inventory orders from the factory and providing logistical support during importation; placing inventory orders from the factory and providing logistical support during importation; invoicing customers and reconciliation of overseas creditors and trade payables; and management of dealers.

The Kenya Revenue Authority (“KRA”) conducted an audit review of CCG Kenya’s tax records, issued an income tax assessment of KES119-million for the year 2017 and made the following observations:

the use of the CUP method by CCG Kenya, based on the prices charged by CMI Africa affiliates to CGTL prior to the establishment of the joint venture under CCG Holdings, was not appropriate because it may not have taken into consideration the material differences likely to have been occasioned by the time difference between the comparable transactions;
CCG Kenya purchased tangible goods from CMI Africa affiliates and resold them to third parties without physically altering the products and consequently the most appropriate transfer pricing method for this transaction was the resale price method (“RPM”);
CCG Kenya had under-declared income arising from various inter-company transactions such as transfer of stocks from CCG Kenya to CGTL, receipts made on behalf of CCG Kenya and payments made on behalf of CGTL;
services offered by CCG Kenya to CCG Holdings related to CCG Holding's core business do not qualify as low value-adding services and therefore a mark-up of 5% would not be applicable; and
commission earned on sales to Safaricom was at 1% lower than the 15% and 18% earned on sales to Bidco Africa Limited and was therefore revised from 1% to 15%, giving rise to additional taxes.

CCG Kenya objected to the assessment and, following a partial allowance of the objection by the KRA, filed an appeal to the TAT on 8 August 2023. The issues submitted before TAT for determination were:

whether the KRA was justified in concluding that CCG Holdings lacks substance in Mauritius and therefore the entity is taxable in Kenya;
whether the KRA was justified in imposing a different transfer pricing method on CCG Kenya’s transactions; and
whether the KRA was justified in uplifting the commission earned by CCG Kenya from its transactions with Safaricom PLC.

The TAT partially allowed the appeal and held that:

CCG Kenya did not discharge its burden of proof in relation to substance concerns relating to the operations of CCG Holdings;
the main comparability factors to take into account in applying the CUP method in relation to the two transactions were the products involved, sales volumes and payment terms;
CCG Kenya did not make adjustments for the timing difference under the CUP method and, therefore, was not justified in using the same;
the KRA did not consider various factors in CCG Kenya’s transactions, including workshop costs and service costs, which would be key in making a finding for RPM as the appropriate method as per the OECD TP Guidelines;
while RPM is the more appropriate method for these transactions based on the OECD TP Guidelines, the KRA did not make adjustments for other costs associated with the purchase of the products;
the KRA was justified in making adjustments to CCG Kenya’s TP method, but it was required to also make the necessary costs adjustments according to the OECD TP Guidelines; and
assessments in relation to commissions on Safaricom income were not justified.

The TAT made its final decision and held that:

the assessment in relation to substance concerns in relation to operations of CCG holdings are upheld;
The assessment in relation to the transfer pricing method applicable on the purchase of products by CCG Kenya from CMI are upheld and the KRA is required to only apply it by making adjustments for costs as per the Tribunal's findings;
the assessment in relation to commissions on Safaricom income should be dismissed and is hereby set aside; and
the KRA should recompute the tax assessment based on the TAT findings within 30 days of the date of delivery of this Judgment.

NIGERIA: Hold on cybersecurity levy implementation implemented

The Central Bank of Nigeria (“CBN”) has temporarily withdrawn its biennial publication on Monetary, Credit, Foreign Trade, and Exchange Policy Guidelines, published for Fiscal Years 2024-2025 on 17 September 2024.

The Guidelines had provided for a new direction on the implementation of the Cyber Security Levy that was suspended in May 2024. The removal of the biennial policy guideline indicates that the Cybersecurity Levy will continue to be on hold.

NIGERIA: E-invoicing system to enhance tax administration and compliance to be introduced

As part of the ongoing digital transformation strategy of the Federal Inland Revenue Service (“FIRS”), the Executive Chairman of the has announced the FIRS plan to introduce an FIRS e-invoicing system. The system will be an online digital solution aimed at improving tax administration and compliance. The e-invoicing system will facilitate real-time validation and storage of transactions across business-to-business, business-to-consumer, and business-to-government transactions.

NIGERIA: Position on increase in VAT rate clarified

Following a report that the government is proposing a bill to the National Assembly to increase the VAT rate from the current 7.5% to 10%, the federal government has informed the public that the VAT rate currently remains unchanged at 7.5% for the category of goods and services to which the tax is applicable.

NIGERIA: Electronic money transfer levy implemented

Pursuant to the Electronic Money Transfer Levy Regulation 2022 made by the Minister of Finance under section 89A of the Stamp Duties Act, the FIRS has started implementing an electronic money transfer levy (“EMTL”) of NGN50 on any electronic receipt or electronic transfer of NGN10 000 and more received by customers of any bank. Financial institutions and fintech companies are required to comply with the government's directive with effect from 9 September 2024.

RWANDA: Protocol to Singapore tax treaty signed

On 13 September 2024 and 20 September 2024, Rwanda and Singapore, respectively, signed an amending protocol to update the Rwanda - Singapore Income Tax Treaty (2014). The protocol amends the preamble of the treaty and introduces a new article 26A (Entitlement to Benefits), bringing the treaty in line with the latest international standards, following the OECD/G20 Base Erosion and Profit Shifting (BEPS) recommendations.

SEYCHELLES: Signing of STTR MLI approved by Cabinet of Ministers

On 11 September 2024, the Cabinet of Ministers of Seychelles approved the signing and adoption of the Multilateral Convention to Facilitate the Implementation of the Pillar Two Subject to Tax Rule (STTR MLI).

The STTR MLI will facilitate the swift implementation of the subject-to-tax rule (STTR), which was developed as part of the Two-Pillar Solution to address the tax challenges arising from the digitalization of the global economy, under Action 1 of the BEPS project.

Celia Becker

Executive | Africa Regulatory and Business Intelligence

cbecker@ENSafrica.com