Preventing Tax Base Erosion and Profit Shifting Occasioned by Offshore Indirect Transfer of Assets: Perspectives from Africa

One of the tax base erosion and profit shifting (BEPS) schemes that has been a major concern in developing countries over the last few years is the “offshore indirect transfer” of business assets to low-tax jurisdictions that facilitate tax planning so as to avoid capital gains tax in the countries were the asset is located. Often these schemes involve assets that are based in developing countries. Besides the BEPS challenges posed, offshore indirect transfers can also result in double non-taxation and double taxation in the country where the asset is located and the residence country of the seller and/or the buyer of the asset. This article discusses these tax challenges from the African perspective by discussing various cases and reports of offshore indirect transfers in different African countries. The article provides recommendations regarding the domestic tax provisions that African countries should have in place in order to effectively protect their tax bases, as well as measures to effectively detect these schemes and collect the tax due. The article also discusses the double tax treaty provisions that countries ought to have in place to effectively protect against the erosion of their tax bases. The recommendations in this article will be useful for tax policy makers, tax treaty negotiators and tax administrations in developing countries, particularly those in Africa, in their endeavours to protect their tax bases from the scourge of offshore indirect transfers of assets located in their jurisdictions.