Tax Base Erosion and Profit Shifting in Africa – Part 2: A Critique of Some Priority OECD Actions from an African Perspective
Three of the highest priority actions were identified in this paper, which have the greatest BEPS impact for African economies. These are: Action 4, which deals with limiting base erosion via interest deductions and other financial payments; Action 6, which deals with preventing treaty abuse; and Action 7, which discussed the prevention of the artificial avoidance of permanent establishment status. The paper discusses the special concerns that an array of African countries face, with respect to Actions 4, 6 and 7 and the limitations of the measures that they currently apply to deal with those concerns, and refers back. Thereafter, the paper provides recommendations as to how African countries can effectively implement the OECD recommendations with respect to Actions 4, 6 and 7. This analysis is based on the premise that as much as African countries are encouraged to associate themselves with the OECD recommendations to curtail BEPS, their approach should be one of coming up with customized solutions to protect their tax bases. Since African countries’ tax systems are not homogenous and since their levels of economic development as well as their levels of administrative capacity to deal with the challenges associated with BEPS vary immensely, each country must evaluate its own situation to identify its particular issues and determine the most appropriate techniques to ensure a sound tax base.