Ethiopia has introduced Transfer Pricing rules and the new rules are applicable for all Ethiopian taxpayers with cross-border Intercompany Transactions exceeding 500,000 Ethiopian birr/USD 22,380 and for Ethiopian taxpayers with domestic Intercompany Transactions provided they have annual revenues which exceeding 500,000 Ethiopian birr/USD 22,380.

The main changes are summarised below:

Specific TP Compliance: Taxpayers involved in cross-border Intercompany Transactions with an aggregated value of exceeding 500,000 Ethiopian birrs (USD 22,380) are required to prepare a Transfer Pricing declaration form.

Documentation requirements: Transfer pricing rules require a taxpayer to have Transfer Pricing Documentation in place at the filing date of its statutory tax return.

Documentation deadlines: Transfer Pricing Documentation needs to be submitted upon request within 45 days.

Documentation language: Transfer Pricing Documentation needs to be prepared in either Amharic or English.

Applicable method: The new rules provide for five approved transfer pricing methods to test the arm’s length nature of related party transactions, similar to the ones provided by the OECD. However, the ITP states that the Comparable Uncontrolled Price (CUP) Method will be considered to be the most preferred method.

Comparable data: Local and regional comparable are preferred above comparable from other geographic markets. Comparable from other geographic markets will, however, be accepted if appropriate adjustments are made to account for geographic differences and other factors that affect price and profitability.

Range: The Transfer Pricing rules determine that only if the result of the tested party falls outside the interquartile range, that the tax authorities will make an adjustment based on the median of the interquartile range. The taxpayer and the tax authorities may provide arguments why another point within the range is more appropriate.

APAs-Availability of APA:  The new TP rules provide that a taxpayer may request to enter into an advance pricing arrangement (APA) with the ETA to determine the arm’s length conditions for its future transactions over a fixed period of time

Unilateral: Transfer pricing rules allow the taxpayer to enter into Unilateral Advance Pricing Agreement.

Bilateral: Transfer pricing rules allow the taxpayer to enter into Bilateral Advance Pricing Agreement.

Multilateral: Transfer pricing rules allow the taxpayer to enter into Multilateral Advance Pricing Agreement.

APAs Validity: In principle APA’s can be concluded for a period of 5 years.