Reflections on the East African experience since the publication of the BEPS Actions, the rise of aggressive transfer pricing enforcement, and the unfinished promise of tax certainty through MAP and APAs.
By TaxIQ Africa | Transfer Pricing & International Tax Specialists for Africa
When the OECD/G20 BEPS project delivered its final reports in 2015, the promise was not modest. The central ambition was to ensure that profits would be taxed where the economic activities generating those profits are performed and where value is created. The transfer pricing reforms under BEPS Actions 8–10 were particularly significant because they sought to move the debate beyond legal ownership and contractual allocation of risk, toward substance, DEMPE functions, control over risk, and actual value creation.
For East Africa, this was a turning point. Kenya, Uganda, Tanzania and Rwanda did not merely observe the BEPS project from a distance. Over the past decade, their tax administrations have absorbed BEPS vocabulary, upgraded transfer pricing rules, expanded information requests, challenged intra-group arrangements more forcefully, and increasingly tested whether regional or offshore hubs truly earn the profits allocated to them.
But the East African experience also reveals a harder truth: BEPS did not end the controversy. It changed its location.
- From tax havens to substance hubs
Pre-BEPS disputes often focused on profits booked in zero-tax or low-tax jurisdictions with little substance. The post-BEPS environment has weakened the most artificial of those structures. Multinational enterprises have responded by relocating profit attribution to higher-substance hubs: Dubai, Mauritius, South Africa, the Netherlands, Singapore, Switzerland, and in some cases regional African principal or procurement entities.
This is a meaningful improvement. It is harder today to defend pure paper structures. But it has not fully answered the African question: where markets contribute customers, distribution infrastructure, regulatory access, data, network effects, execution teams and local commercial risk, should they receive only routine cost-plus or limited-risk returns?
The profit has often moved from tax haven to hub, but not necessarily from hub to market.
That is now the core East African BEPS debate.
- East African tax administrations have become far more assertive
The most visible post-BEPS outcome in East Africa has been administrative aggression. Tax authorities now routinely interrogate:
- controlled transactions involving management fees, royalties, procurement, financing, digital services, logistics and trading hubs;
- whether local entities have been mischaracterised as low-risk distributors, service providers or support entities;
- whether non-resident entities have created permanent establishments through people, infrastructure, servers, dependent agents or local execution;
- whether intangibles legally owned offshore are in fact developed, enhanced, maintained, protected or exploited through local functions; and
- whether the pricing model reflects economic reality rather than contractual form.
Kenya has moved to modernise its transfer pricing framework. Tanzania has had a formal transfer pricing regime and guidance for years, including provisions dealing with APAs. Uganda’s transfer pricing regulations have long contemplated APAs. Rwanda’s transfer pricing framework has also developed significantly, reflecting the region’s broader shift toward more structured and substance-based enforcement.
The result is that East African revenue authorities are no longer passive recipients of global tax planning outcomes. They are actively challenging them.
- The problem: BEPS language is sometimes used without BEPS discipline
The concern is not that tax administrations are asking hard questions. They should. The concern is that BEPS concepts are sometimes deployed as broad anti-MNE weapons rather than disciplined analytical tools.
Substance without sufficient analysis
The existence of local employees, customers or infrastructure is sometimes used to justify large adjustments without properly identifying who performs which functions, controls which risks, owns which assets, and earns which return.
PE arguments stretched too far
Permanent establishment arguments are sometimes used to solve transfer pricing or revenue allocation concerns, even where treaty thresholds and domestic charging provisions require a more careful analysis.
Group entities conflated
A local affiliate’s activities, filings, contracts or payments may be used to assess a non-resident group company, even where legal personality, contractual role and transaction flows differ.
Fair-share instinct before legal analysis
Revenue authorities sometimes begin from a perceived “fair share” outcome and work backwards to a legal theory. BEPS was never intended to replace the rule of law with fiscal intuition.
- The certainty gap: MAP and APA remain underdeveloped
This is where the East African experience has been most disappointing. BEPS was not only about stronger enforcement. It was also about improving dispute resolution and tax certainty. Action 14 specifically addressed the need to make treaty dispute resolution more effective. MAP and APAs were expected to become important mechanisms for preventing or resolving double taxation and transfer pricing disputes.
Yet in East Africa, certainty mechanisms remain thin.
Kenya has issued MAP guidance and has introduced a formal APA framework effective from 2026, with draft APA regulations providing for unilateral, bilateral and multilateral APAs, rollback concepts, pre-filing meetings and application procedures. That is a major policy development. But the practical test will be whether the framework becomes a genuine certainty instrument rather than another audit gateway.
Uganda’s regulations have long allowed taxpayers to request APAs much as it has not been widely utilised. Tanzania also provides for APAs, including bilateral APAs under MAP in its guidance. Rwanda’s developing rules suggest a movement toward more structured transfer pricing administration. But the region as a whole still lacks a mature certainty culture.
The imbalance is clear: enforcement has accelerated faster than certainty. Audit capacity has grown faster than competent authority capacity. Information demands have expanded faster than dispute resolution pathways.
This creates a harsh environment for MNEs: high-value assessments, long audit cycles, aggressive legal theories, immediate collection pressure, and limited practical access to advance certainty or bilateral relief.
- The injury to MNEs is real
There is a legitimate African revenue mobilisation objective. East African countries cannot afford to ignore profit shifting. Transfer pricing abuse, thin capitalisation, offshore intangibles, procurement hubs and digitalised business models can materially erode the tax base.
But the current enforcement posture can also be injurious.
MNEs face the risk of double taxation where one country makes a primary adjustment and the counterparty jurisdiction does not grant a corresponding adjustment. They face uncertainty where audits remain open for years and assessments are issued on broad assumptions. They face cash-flow strain where disputed tax is demanded before the underlying economic analysis is complete. They face reputational risk where ordinary transfer pricing disputes are framed as tax avoidance or evasion. They also face investment risk where the cost of doing business becomes unpredictable.
That uncertainty is especially damaging for East Africa because the region needs cross-border investment in infrastructure, telecoms, energy, logistics, manufacturing, financial services, agribusiness and digital platforms. These sectors often require regional operating models. A tax system that treats every regional hub structure as suspicious may collect some short-term revenue, but it may also discourage the very investment needed to deepen the tax base.
- What has BEPS achieved in East Africa?
The answer is mixed.
BEPS has strengthened legislative frameworks. It has given tax administrations better language, better tools and stronger confidence. It has improved awareness of DEMPE, risk control, documentation, beneficial ownership, treaty abuse, country-by-country reporting and substance. It has made pure tax haven structures harder to defend.
But BEPS has not yet delivered balanced outcomes. In East Africa, the post-BEPS era has often been enforcement-heavy and certainty-light. The region has become better at identifying perceived misalignment, but not yet consistently better at resolving it.
The next phase must move from “BEPS as audit weapon” to “BEPS as governance framework”.
- The way forward
East African tax administrations should continue to challenge artificial profit allocation. But they should do so through disciplined functional analysis, transaction-level evidence and treaty-consistent reasoning.
MNEs, for their part, must accept that old-style structures will not survive. Documentation must be more than compliance paperwork. It must demonstrate commercial reality, decision-making, risk control, people functions, asset ownership, pricing logic and local contribution.
The region also urgently needs credible certainty mechanisms. MAP units should be properly staffed. APA programmes should be practical, timely and commercially usable. Bilateral APAs should be prioritised for high-risk recurring transactions. Domestic ADR should be integrated with treaty relief, not used as a substitute for it. Tax administrations should publish anonymised guidance from resolved cases to improve predictability.
Most importantly, East Africa must avoid replacing one distortion with another. Pre-BEPS tax planning often over-allocated profits to tax havens. Post-BEPS enforcement should not over-correct by allocating profits to market jurisdictions without proper regard to functions, assets, risks and legal thresholds.
Conclusion
BEPS did not end tax avoidance. It narrowed some routes, exposed others, and forced the debate into more substantive terrain. In East Africa, it has empowered tax administrations and changed the tone of transfer pricing enforcement. That is positive.
But the unfinished task is balance.
The region must ensure that profits follow value creation, not merely legal ownership, but also not merely revenue authority assertion. The future of BEPS in East Africa should be built on three pillars: robust enforcement, principled analysis, and credible tax certainty.
Without all three, BEPS will remain incomplete: not the end of profit shifting, but simply the relocation of tax controversy.
Indicative references for web publishing
- OECD, Aligning Transfer Pricing Outcomes with Value Creation, Actions 8–10: 2015 Final Reports.
- OECD, Making Dispute Resolution Mechanisms More Effective, Action 14: 2015 Final Report.
- Kenya Revenue Authority, Guidance on Mutual Agreement Procedure.
- Kenya Revenue Authority, Draft Income Tax (Transfer Pricing) Rules, 2023.
- Tanzania Revenue Authority, transfer pricing regulations and guidance.
- Uganda transfer pricing regulations and APA provisions.
- Rwanda transfer pricing rules and related guidance.