posted on 2024-09-05, 21:45authored byCassandra Vet
Eastern African countries have codified transfer pricing regulations in their efforts to ring fence corporate tax revenue against profit shifting by multinational companies. Kenya (in
2006), Uganda (2011) and Rwanda (2020) used the dominant OECD transfer pricing
guidelines as a template for reform. The wisdom of this approach for developing countries is
contested in academic and civil society literature. According to this view, Western states
largely dominate rule-setting procedures, and the costly enforcement of transfer pricing
drains the scarce resources of revenue authorities.
How can we reconcile the critical perspective in global debates with the roll-out of OECD type transfer pricing regimes on the ground? Case study evidence collected in these
countries reveals that policymakers prefer anti-avoidance measures that are widespread and
considered global practice. The widespread adoption of OECD transfer pricing norms
worldwide gives them a unique compatibility advantage – this allows governments to adopt
them as a way to raise public revenue, without compromising their attractiveness to
investors. These network externalities are among the powerful lock-in effects that have
cemented the position of the OECD guidelines in global tax governance.
This study complements this narrative with a more bottom-up perspective. This highlights
how domestic coalitions drive support for the OECD framework by mobilising both ideational
and economic network effects. From this perspective the OECD rules are still an authoritative
focal point for policymakers because interested social groups leverage concern about
investor attractiveness. Ideational incentives shape bureaucratic policy advice to OECD
standards. Civil society organisations, despite their critical stance towards the OECD
guidelines at a global level, did not coalesce around a specific alternative – and instead
raised the urgency of increasing public revenue.
History
Publisher
Institute of Development Studies
Citation
Vet, C. (2023) Diffusion of OECD Transfer Pricing Regulations in Eastern Africa: Agency and Compliance in Governing Profit-Shifting Behaviour, ICTD Working Paper 164, DOI: 10.19088/ICTD.2023.022