Building the tax controversy environment in Africa, Southeast Asia and the Middle East
International Tax Review is part of the Delinian Group, Delinian Limited, 4 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 00954730
Copyright © Delinian Limited and its affiliated companies 2024

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Building the tax controversy environment in Africa, Southeast Asia and the Middle East

Sponsored by


Fred Omondi, Carlo Llanes Navarro, Anil Kumar Gupta, Lenny Saputra and Rabia Gandapur look into how developing economies across the world are embracing increasingly complex transfer pricing framework.

Africa, Middle East (ME) and Southeast Asia (SEA) are fast becoming key markets for multinational enterprises (MNEs) globally. However, the transfer pricing (TP) environment in each of these regions is at a different stage of evolution. In this article, the authors describe local nuances that taxpayers may face while navigating the TP controversy environment in each of these geographies.

Though Africa and SEA have had TP regulations for more than a decade with formal compliance requirements in most countries, the TP controversy rules have evolved differently in each region. In Africa, controversy strategy revolves around local litigation with less emphasis on advance pricing agreements (APAs) and mutual agreement procedures (MAPs). On the other hand, MAP plays a key part in SEA for the dispute resolution process. Formal TP regulations in some ME countries have been introduced fairly recently and it is expected that more countries in ME will follow suit. However, interestingly, TP-related enquiries are already becoming quite common – which is true also for jurisdictions wherein detailed TP rules are yet to be introduced. This shows that taxpayers must face a different set of challenges in each country, reflecting the complexities of local processes and distinct levels of sophistication on the part of the specific tax authority.


There is pressure on revenue authorities to meet revenue targets against the backdrop of rising fiscal deficits, debt levels and depressed commodity prices. This has increased the frequency of tax audits and compliance checks, resulting in a growing number of tax disputes.

While approaches by revenue authorities differ from country to country, most audits are triggered by perceived risks and the potential for assessment of additional tax. Some of the common triggers include:

  • The type of industry or sector;

  • Quantum of related party transactions;

  • History of low profitability or losses in consecutive years;

  • Specific transactions such as royalties, management and technical fees;

  • Inter-company loans, as well as group structures that involve entities in no/low tax jurisdictions.

In some cases, audits are triggered by whistle blowers or by data that are available publicly in various publications and in media reports. Even information in company/group reports and websites can enable the revenue authority to obtain data on the performance of the larger group, as compared to the local entity. It is therefore important for taxpayers to pay special attention to the above risk indicators and develop adequate support for their transactions and policies.

The nature of disputes has continued to evolve with changes in tax legislation and enhancement of the technical capacity of many revenue authorities. While disputes in the past revolved around basic compliance issues, many controversies now arise due to differences in interpretation of legislation and other technical positions adopted by the revenue authority. Disputes in relation to the application of tax treaties has also been witnessed. For instance, many African countries levy withholding taxes on cross-border service type payments, giving rise to disputes regarding the applicability of withholding tax in that context.

Specific to TP, most revenue authorities are adopting a subjective view and challenging the evidence around proof of receipt of services and benefits, as well as requesting documentary support beyond what is expected can be provided in practice. From a compliance perspective, the key challenges involve potential characterisation of the local entities as well as the tendency to disregard critical comparability factors and therefore to reject benchmarking studies provided by taxpayers.

Most countries in Africa provide a formal mechanism for resolving tax disputes. Typically, the first step involves filing an objection to the assessment, which is reviewed within the revenue authority. At this stage, it is advisable to provide as much support and explanations as possible, as many revenue authorities have a tendency to confirm assessments promptly after the objection, in the hope of enforcing collection of revenue. In Rwanda, Uganda and Tanzania for instance, legislation requires that a percentage of the tax assessed must be paid before proceeding to the appeal stage. This may be costly and may place an inordinate burden on a taxpayer.

In the first instance, appeals are usually brought before quasi-judicial tribunals or boards and subsequent appeals are in the courts of law. While there is a growing body of precedents in relation to tax cases, challenges still remain, including questions regarding the independence of tribunals, as members of these tribunals/dispute resolution bodies are appointed and assisted by the same revenue authorities who have a direct interest in the outcome of tax disputes. The courts may also face capacity constraints and as a result the amount of time to resolve cases may be lengthy.

Such challenges have led to growth of alternative dispute resolution, which is now taking root in a number of countries including Kenya. This mechanism allows taxpayers to choose to settle cases through structured negotiations with the revenue authority to arrive at an amicable settlement. While this route is useful in some cases, it does have limitations, especially where the dispute is purely on interpretation of the legislation, as the lack of controlling precedents leaves room for future disputes.

Countries like Nigeria, Egypt, Tanzania, Botswana and Uganda have provisions for APA, however, in practice revenue authorities have not concluded APAs mostly due to lack of capacity. Taxpayers may initiate MAP requests as well; though, a limited number of MAP cases have been presented, due to practical difficulties and delays in conclusion of MAP. As such, both APA and MAP have not been very effective in African countries.

As the number of disputes continues to rise, those taxpayers, who are proactively managing their tax risk and engaging with the revenue authorities to mitigate the potential exposure, will do well. On their part, authorities should enhance the clarity of tax legislation through supporting guidelines, practice notes and rulings, and should endeavour to improve the dispute resolution mechanisms in terms of capacity and objectivity.

Southeast Asia

SEA is a significant economic force and driver of global growth. MNEs are transforming industry and business operations to cope with technological progress and demand. Tax authorities in the SEA region are becoming more sophisticated in handling TP controversies. As a result, SEA MNEs are more exposed to TP disputes with tax authorities. Whilst most SEA countries have TP legislation, Malaysia and Indonesia are the most active when it comes to TP audit.


TP audit is a key focus of the Inland Revenue Board of Malaysia (IRBM). The practice continues to evolve in the post-base erosion and profit shifting (BEPS) world.

Further, amid increasing demands for tax transparency, Malaysian tax enforcement agencies are using Big Data and Internet of Things (IoT) for taxpayer profiling, flagging potential issues, and identifying higher-risk cases.

Post-BEPS, Malaysian controversies involve:

  • Marketing intangibles: There is increased scrutiny if intensive marketing activities are performed by the distributor. The issue is whether these activities are appropriately compensated as a part of overall distributor returns.

    In relation to trade intangibles, the IRBM examines 'indefinite royalty period pay-outs'. This is to ensure that customisation or technology enhancements are given due consideration when determining royalty rates, especially from the perspective of development, enhancement, maintenance, protection, and exploitation (DEMPE) of intangibles;

  • Management fees are increasingly questioned from the perspective requiring documentation of benefits to the recipient. The low value-added services guidelines recently issued by the OECD have not yet been accepted by the IRBM;

  • Increased focus on control-over-risk: In a contract manufacturing situation, low margins/losses are always questioned on the basis of which party controls risk (i.e. at whose behest was capacity expanded or the decision taken to introduce a new product line); and

  • Berry ratio compensation for sogo shosha entities.

The penalty regime is linked to the amount of underpayment of taxes. It ranges between 30 to 50% and is required to be paid before proceeding with the domestic appeal procedure/MAP.

As a litigation route, after the conclusion of audit and payment of additional demand, the taxpayer can file an appeal before the Dispute Resolution Panel (DRP). Appeal of the DRP decisions may be made to the Special Commission of Income Tax, the High Court and the Court of Appeal. Malaysia has relatively few court rulings concerning TP matters. Moreover, protracted litigation at higher appellate forums involves extensive time and resources. In most cases, this delay incentivises amicable settlements.

To manage economic double taxation, MAP is available through most tax treaties. The procedure is aligned with BEPS Action 14 (although mandatory arbitration is generally not available).


For the last three years, in reviewing taxpayer's application of the arm's-length principle, the Directorate General of Taxes (DGT) has focused on:

  • Income tax return overpayment (refund position) which automatically triggers tax audit;

  • Intra-group service payments that require proof of existence of services; benefits enjoyed; and the arm's-length nature;

  • Supporting documents including, but not limited to, agreements, curriculum vitae (CVs), timesheets, cost allocation details, copies of correspondences are required. The concept of low value-adding intra-group services (LVAS) has not yet been adopted in Indonesia;

  • Return on value added costs policy was introduced as part of 'remuneration based on economic value added'. It questions the extent to which parties bear risks for certain activities in Indonesia.

For example, an Indonesian limited risk distributor (LRD) is remunerated by reference to a margin on its operating expenses. This is because the sales price of imported goods sold locally is controlled by the group. The taxpayer is often challenged to show tangible aspects of control over risks performed by the group; to show how these differ from other LRDs remunerated for cost of sales and operating expenses; and to demonstrate how the policy is executed and if it is accepted in a third-party situation.

  • Similar to Malaysia, and since Indonesia is a prime market, challenges exist on whether the taxpayer has performed significant marketing activities to enhance the value of the intellectual property (IP) owned by the IP owner.

If it disagrees with the outcome of the tax audit, a taxpayer may pursue further domestic dispute routes i.e. objection and appeal. Through its counterparty, the taxpayer may also initiate MAP simultaneously with the domestic dispute process. However, any MAP that is in process is automatically cancelled once a court verdict is issued.

Middle East

The Middle East (ME) region's tax landscape has gone through unprecedented changes, with certain countries introducing value added tax, country-by-country reporting (CbCR) requirements, and economic substance regulations, all in the span of two years.

As such, the approach of tax authorities in the region has evolved substantially, and while there remain some areas of development, there is a clear directive from local governments to establish a robust regulatory framework, aligned with international best practice. This is visible through governments investing heavily in the underlying infrastructure of tax departments and regulators, increasing the number of dedicated TP staff, hiring TP specialists from mature markets, and upskilling and increasing the capacity of tax departments, as well as collaborating and cooperating with international organisations such as the OECD and UN.

The ME's various jurisdictions are at different stages of TP evolution, with some countries like the Kingdom of Saudi Arabia (KSA) and Egypt having detailed TP legislation while others such as the Sultanate of Oman (Oman), Jordan, and Lebanon making general reference to the arm's-length principle. To provide insights across the spectrum, here we focus on KSA, one of the largest jurisdictions in the region, and Oman, which while it does not have detailed TP legislation, does have an increasingly active controversy landscape.

Kingdom of Saudi Arabia (KSA)

As a G20 member state, the KSA continued its efforts to align with the BEPS Action Plan and introduced detailed TP legislation and CbCR rules in 2018. The General Authority of Taxation and Zakat (GAZT) has pursued a transformational path, ramping up its capabilities to capture and analyse data and has significantly increased its audit activities. Its focus has primarily been on MNEs inbound into the KSA, particularly persistent loss-making entities.

Other challenges have included MNEs which have low margins or which pay management, technical or consulting charges to overseas affiliates. Business restructurings and 'free of charge' transactions, as disclosed by MNEs in the related party disclosure form submitted with the tax return, are also common triggers for TP audits and controversy. Material high value transactions or those with tax havens as counterparties have also attracted increased attention.

The GAZT has recently introduced MAPs and continues its alignment with the international tax environment. Once fully implemented, the MAP process will help mitigate the risk of double taxation for MNEs operating in the country.

The GAZT is increasingly taking a holistic view of cross-border activities of MNEs, taking into account not only TP but also wider considerations such as permanent establishment (PE) risk, withholding tax, customs and VAT, and bringing together specialists in all these areas when assessing MNEs' cross-border activity.

Sultanate of Oman (Oman)

While Oman's income tax law does not contain detailed TP legislation, MNEs are experiencing increased audits in relation to related party transactions. The law refers to the arm's-length principle and increasingly, the Oman Tax Authority (TA) has been raising enquiries into cross-border activity as part of their tax audits. A number of global MNEs operating in Oman have objections underway with the TA.

The challenges relate primarily to related party transactions with no/low tax countries like the UAE and Bahrain, where many MNEs base their regional headquarters. MNEs in Oman with low margins (or losses) are frequently challenged, specifically with respect to related party purchases, cross-border funding as well as management fees and other support costs. The challenges from the TA typically include the disallowance of a portion of the above charges, particularly in cases where limited or no TP documentation supports the related party arrangements.

MNEs should be prepared for TP related audits in the ME, even in jurisdictions without comprehensive TP legislation. It is important to ensure that local entities of MNEs are supported by central TP departments to ensure the application of globally consistent, centrally controlled TP policies, which consider the group's overall strategy and approach. However, this needs to be balanced with the involvement of local TP experts who understand the nuances of operating in the region, the practices and interpretations of the local tax authorities, to ensure that TP controversy can be handled most effectively.

Click here to read the entire 2020 Deloitte/ITR Transfer Pricing Controversy guide

Fred Omondi


Deloitte East Africa

T: +254 719 039 318; ext. 2318


Fred Omondi is a tax partner at Deloitte East Africa and has more than 15 years of experience in taxation focusing on tax dispute resolution, TP, international tax and advising clients on tax issues relating to business set up and restructuring. Prior to joining Deloitte, he worked at the Large Taxpayers Office of the Kenya Revenue Authority.

Fred works with leading local and multinational organisations in managing their tax affairs. He has built a solid reputation in handling tax controversy and has resolved a number of landmark cases at the Tax Appeals Tribunal and the Alternative Dispute Resolution forum.

Fred holds a bachelor's degree in commerce (accounting option) from the University of Nairobi, is a Fellow of the Association of Chartered Certified Accountants and a member of the Institute of Certified Public Accountants of Kenya.

Carlo Llanes Navarro


Deloitte Southeast Asia

T: +63 2 581 9035


Carlo Llanes Navarro is Deloitte's SEA transfer pricing leader and heads Deloitte's SEA TP centre located in Manila, Philippines. He specialises in TP matters, international corporate restructuring and planning, cross-border taxation, and tax-effective supply chain transformations.

Before joining Deloitte, Carlo led TP and international tax practices of Big 4 firms around the SEA region. He has more than 20 years of experience working in various jurisdictions as an international tax and TP practitioner, giving him practical experience in dealing with the tax authorities of these countries.

Carlo has assisted clients in various phases of TP engagements, from planning, documentation and audit defense to negotiating APAs and MAPs. He has an excellent reputation in handling TP audits and bilateral negotiations.

As a recognised subject matter expert, Carlo has published various articles in international tax journals, covering issues on permanent establishments, taxation and TP aspects of business restructuring, and the latest developments in the area of TP in the SEA region.

Anil Kumar Gupta


Deloitte Malaysia

T: +60 3 7610 8224


Anil Kumar Gupta is a director with Deloitte's TP practice in Malaysia. He has a post-qualification experience of more than 12 years in TP and specialises in representing clients before tax authorities in Asia. He deals with clients from diverse industries, such as consumer durables, IT, pharmaceuticals, and telecommunication.

Anil has worked on a wide variety of TP issues that include planning, evaluating TP models, supply chain management, operational TP, local and regional documentation, high-end litigation, APA and MAP proceedings.

Anil is a chartered accountant from ICAI India and also holds a law degree.

Lenny Saputra

Senior manager

Deloitte Southeast Asia

T: +62 21 5081 8935


Lenny Saputra is a senior manager with the TP practice with close to 10 years of experience in TP consulting field.

Lenny has extensive experience in handling TP compliance, managing disputes as well as advisory assignments involving planning and structuring. She has a particular interest in litigation and dispute matters, and is adept in representing clients in complicated disputes cases at various levels of the tax dispute process.

Lenny also has strong experience in dealing with competent authorities on MAP and APA cases.

Rabia Gandapur


Deloitte Middle East

T: +971 5 0740 3994


Rabia Gandapur is a director with Deloitte's Middle East TP practice. She has more than 13 years of experience in the UK and ME. She advises clients on complex planning and global documentation projects, as well as on TP governance and implementation strategies.

Rabia works with ME-headquartered groups across a diverse range of industries, supporting them to develop global TP policies and revenue/profit sharing TP models. She has in-house experience, having worked at a global investment bank in London. She has a special focus on financial services and treasury TP matters.

Rabia has advised on multiple APAs and MAPs, and has supported clients in their dealings with tax authorities.

Rabia is an associate of the Chartered Institute of Taxation in the UK and has a degree in financial economics.

more across site & bottom lb ros

More from across our site

Australian businessman Gordon Merchant used EY’s advice to offset an A$85 million capital gain, according to the Federal Court
Griggs has been drafted in ahead of schedule as the incumbent Tim Ryan departs for Citigroup; while the Netherlands plans to scrap a 15% share buyback tax
Authorities must ensure that Russian firms do not use transfer pricing schemes to increase profits made from oil sold in different markets, advocacy organisations have argued
Fallet, a partner at law firm Mauger Muniz Advogados in Brazil, tells ITR about his passion for tax law, the leaders who inspired him, and what makes tax cool
The former chief operating officer will assume the role on July 1
Ahead of next week's Indirect Tax Forum in London, ITR spoke with Christian Van Der Valk of Sovos about how different governments and companies are embracing e-invoicing
Konrad Jeczewski has alleged he was threatened with negative reviews before being made redundant by EY Australia
The suggestion was welcomed by Skadden’s European tax head at a special event on space and tax
A majority of clients – particularly high-earning businesses – want advisers with demonstrable social credentials, according to a survey of more than 28,000 corporate counsel
The training comes at a ‘critical time’ in the fight against tax criminals; in other news, Spanish prosecutors have dropped a tax fraud case against Shakira
Gift this article