Ethiopian Ministry of Finance Issues New Transfer Pricing Directive to Ensure Arm’s Length Transactions

The Ethiopian Ministry of Finance issued a Directive to Provide Rules on Transfer Pricing, Directive No. 981/2024, establishing clear rules on transfer pricing. This landmark Directive aims to enhance tax fairness and transparency by ensuring transactions between related parties are conducted at arm’s length, reflecting market conditions.

The Directive draws its authority from the Federal Income Tax Proclamation, which empowers the Ministry of Finance to issue directives on transfer pricing. Recognizing the need for comprehensive and internationally aligned regulations, the Ministry has based Directive 981/2024 on best practices and guidance, particularly the OECD Transfer Pricing Guidelines.

Key Features of the Directive:

Clarifies the “arm’s length principle”: This principle forms the cornerstone of transfer pricing, requiring transactions between related parties to be priced as if they were conducted with independent entities.

Defines key terms: The Directive provides clear definitions for critical terms like “controlled transaction,” “comparable transactions,” and “functional analysis,” ensuring consistency and clarity in application.

Establishes compliance framework: The Directive outlines the different transfer pricing methods and the requirements for taxpayers to prepare and submit transfer pricing documentation, supporting transparent and efficient tax administration.

Our law firm remains closely dedicated to demystifying the intricacies of this new directive and advising clients on navigating the business landscape. Interested parties seeking further details or a copy of the directive can download it here:

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