This journal explores the implementation of the OECD/G20 Base Erosion and Profit Shifting (BEPS) Action 13, Transfer Pricing Documentation and Country-by-Country Reporting, in developing countries. BEPS Action 13 seeks to improve transparency for tax administrations by requiring large multinational enterprises (MNEs) to provide a three-tiered documentation package i.e., Masterfile, local file, and country-by-country report (CbCR). While this measure improves global tax transparency, developing countries still encounter challenges in fully utilizing these tools. The main challenges bedevilling developing counties include institutional, administrative, and technical hurdles in leveraging these tools effectively. This paper assesses thesechallenges in detail, including others such as data access, audit capacity, andlegal frameworks, while providing recommendations. Recommendations providedinclude targeted capacity building strategies and international/ regionalcooperation mechanisms to ensure a coordinated approach to implementation.
Introduction
BEPS Action 13 was introduced as part of the OECD/G20 BEPS Project 15action items, known as the BEPS Action Plan, with the aim to enhance transparency in transfer pricing through standardized documentation and risk assessment tools. BEPS Action 13 recommends a three-tiered approach to transfer pricing documentation, and this consists of the master file, local file, and CbCR, with the intention to equip tax authorities with sufficient information to identify and audit transfer pricing risks (OECD, 2015).
While many developing countries have formally adopted Action 13 or arein the process of doing so however, their ability to make use of theinformation contained in the TP documentation remains limited. This paperexamines the intersection between global transfer pricing standards and thedomestic challenges of developing nations in implementing and enforcing them.
Overview of BEPS Action 13
Three-Tier Document Framework
Master File
The master file provides a comprehensive overview of the MNE group’sglobal business structure and activities, intangibles, intercompany financialactivities, and the overall transfer pricing policies and methodologies (OECD,2015).
Local File
The local file is designed to support the master file. Offers detailedinformation on the local taxpayer’s intercompany transactions and transferpricing analysis. It encapsulates a detailed overview of the intercompanytransactions of the local taxpayer (UN Tax Committee, 2021).
CbCR
A CbCR report is a requirement for large MNEs (with consolidatedrevenues of €750 million or more) to report financial and tax information foreach jurisdiction they operate in, including revenue, profit, employees,tangible assets, and taxes paid/accrued. It is a breakdown of key elements ofthe company’s financial statements by country of operation (OECD, 2021).
The objective and purpose of Action 13 is to:
1. Enable risk based tax audits
2. Detect aggressive tax planning and base erosion practices
3. Facilitate exchange of tax-relevant information between jurisdictions(OECD, 2015; ATAF, 2020)
Challenges Facing Developing Countries
Legal and Institutional Gaps
Many developing countrieslack comprehensive legal frameworks to require or enforce master file and localfile submissions. Additionally, domestic legislation may not support automaticexchange of CbCR information or lack confidentiality protections required byOECD standards (OECD, 2021).
Administrative and Technical Constraints
Tax administrations in developingcountries frequently face limited human resources, lack of specializedexpertise in transfer pricing, and weak audit capacity. For example, taxauthorities may struggle to interpret CbCR data or assess the arm's lengthnature of complex intercompany transactions (UN Tax Committee, 2021).
Data Use and Risk Assessment
Even when CbCR data isavailable through exchange agreements, some tax administrations do not haverisk assessment tools or experience to extract actionable intelligence. Withoutautomated systems, cross-border data becomes difficult to match with domestictax filings (ATAF, 2020).
MNE Resistance and Compliance Costs
MNEs operating indeveloping countries may resist local documentation demands due to concernsover confidentiality or inconsistent global standards. At the same time, localsubsidiaries may lack the internal capability to prepare documentation thatmeets OECD compliant thresholds (OECD, 2021).
Opportunities and Recommendations
Capacity Building and Training
Investment in training tax auditors on transfer pricing principles, data analytics, and CbCR interpretation is essential. However, regional bodies like the African Tax Administration Forum (ATAF) and international donors can providetechnical assistance (ATAF, 2020).
Opportunities for developing countries on capacity building include the developmentof a UN Practical Manual on TP for Developing Countries (2013, 2017 and 2021Editions) by the United Nations. The manual was tailored for developing countriesand introduced simplified approaches to TP like the “sixth method” forcommodity exports which is highly relevant for African extractive industries(United Nations, 2021).
The current works of the Tax Inspectors Without Borders (TIWB) isillustrative of capacity building and training. The TIWB sent tax experts to Kenya,Botswana, Zambia, and Uganda, with each mission lasting 6–24 months. TIWB auditors are embedded within the host countrytax administration to offer mentorship and practical skills training (TIWB,2020)
Regional Cooperation and Shared Infrastructure
Developing countries canpool resources and share technology platforms for CbCR data analysis andtransfer pricing databases. However, regional tax hubs can step in and centralizeaudit expertise and facilitate peer learning OECD, 2021).
Opportunities available to developing countries in Africa on thissubject matter include the ATAF development of TP guidelines that align withOECD principles but address African market realities, including comparablesscarcity and limited audit capacity. ATAF also supported the Nigeria Federal InlandRevenue Service (FIRS), between 2018 and 2022, in TP audits that resulted in over$500 million in tax adjustments (ATAF, 2022)
In 2020, ATAF provided expert audit teams and TP documentation support toZimbabwe under ATAF’s short-term missions program. Also, the African Union and ATAF collaborated with the UN to deliver regionalworkshops on TP industry sector specific guidance (e.g., in Addis Ababa, 2018and Nairobi, 2019 (United Nations, 2021).
Legal Harmonization and Model Laws
Adopting OECD compliant model legislation and confidentiality safeguards will help integrate developing countries into the international exchange framework and improveaccess to CbCR (OECD, 2015).
ATAF developed the Suggested Approach to Drafting Transfer Pricing Legislation, first issued in 2016 and revised in 2021, to provide a harmonized yet flexible legislative model tailored to African economies. The framework incorporates OECD style arm’s length principles while offering simplified methods where data or administrative capacity is limited. The legislation guide helps member countries like Eswatini, Botswana, and Liberia draft TP laws aligned with African economic conditions (ATAF, 2021). It also addresses challenges such as the scarcity of local comparable by advocating the use of pan-African or commodity-based pricing models. Also, the IMF provided country specific policy advice on TP legislation and tax treaty negotiation to several African countries e.g., inTanzania (2016), the IMF advised on TP rule alignment with domestic law anddrafted model APA procedures (IMF, 2017).
Strategic Use of Local Files
Even without CbCR access,local files can be used to improve audit quality. Countries should require well scoped local file content and build tools to match intercompany transactionswith financial and tax data (UN Tax Committee, 2021)
Conclusion
BEPS Action 13 represents a critical step toward fairer global taxation.For developing countries, however, it presents both promise and challenge.Maximizing the benefits of transfer pricing documentation and CbCR requireslegal reform, capacity building, regional cooperation, and technologyinvestment. Through targeted support and inclusive international dialogue,developing nations can enhance their ability to curb profit shifting andprotect their tax bases.
