The regulations will initially only apply to companies whose turnover exceeds $280 million, who will be required to prepare a transfer pricing file to show their transactions meet with arm’s length principles.
Transfer pricing adviser Paulo Mendonca, of Ernst and Young in Portugal, said multinationals must be ready to meet the new requirements or they will face strict penalties from the tax authorities.
“Companies in Angola must begin preparing by defining the related party perimeter of companies operating in Angola and abroad,” said Mendonca. “They must identify all the relevant controlled transactions carried out by these parties.”
Bucking the trend
Unlike many other jurisdictions, the Angolan regulations will allow only three methods of determining transaction prices: The comparable uncontrolled price method, the resale price method and the cost plus method.
Many companies use the residual profit split method approach in their documentation and its exclusion from Angola’s regulations means an added compliance burden for taxpayers.
“This is actually quite an advanced scheme which reflects a trend of tax authorities challenging residual methods more now,” said Mendonca.
The approach allows the tax authorities to scrutinise the most relevant transactions carried out by related parties in more detail to check they meet with arm’s length standards.
OECD comparison
For the most part, the rules follow OECD guidelines, but they differ in that they do not provide for alternative approaches such as profit-based methods to be used for transaction analysis.
Taxpayers with unique circumstances or transactions may have difficulty fitting into one of the allowed methods, and this may give rise to controversy related to the potential use of alternative approaches.
Gustavo Amaral, of KPMG in Angola, said many of Angola’s major taxpayers have a distinct lack of transfer pricing knowledge and this is something they must address immediately.
“The documentation will need to be provided by 2013 but I can assure you that many of the large taxpayers in Angola – such as those in oil and gas, construction and professional services industries – do not have the expertise required to comply with all of the transfer pricing documentation requirements,” said Amaral.
