Ethiopian Law on Transfer Pricing: A Critical Examination

Abstract

Transfer pricing by multinational corporations is one of the darkest sides ofinternational investment. Companies transfer large amount of profit untaxed outof a jurisdiction with the highest tax rate to countries with lowest corporate taxrate by mispricing their transactions. The OECD and UN came up with modelconventions aimed at tackling this dilemma in member countries. Ethiopia, in itspart, has introduced provisions governing transfer pricing in both the Customsand Income Tax Proclamations. The Proclamations require related companies tomake their transactions at arm's length. Nonetheless, lack of directives andabsence of comparable data, inter alia, are hindering the application of the lawson transfer pricing in the country, eventually, resulting in a loss of the verymuch needed tax revenue.