Namibia, Republic of
No taxation of combined operations is allowed in Namibia where operations are conducted in a group.
The Minister of Finance confirmed that enforcing transfer pricing laws are high on their agenda and that they are working with, amongst others, the Finish Revenue Authority and the African Tax Administration Forum.
Namibian transfer pricing legislation is aimed at enforcing the arm’s-length principle in cross-border transactions carried out between connected persons. It is based on guidance set out by the Organisation for Economic Co-operation and Development (OECD) Transfer Pricing Guidelines for multinational enterprises and tax administrations.
The objective of the transfer pricing legislation is to provide taxpayers with guidelines regarding the procedures to be followed in the determination of arm's-length prices, taking into account the Namibian business environment. It also sets out the Minister of Finance's views on documentation and other practical issues that are relevant in setting and reviewing transfer pricing in international agreements.
The transfer pricing legislation is essentially aimed at ensuring that cross-border transactions between companies operating in a multinational group are fairly priced and that profits are not stripped out of Namibia and taxed in lower tax jurisdictions. The legislation achieves this by giving the Minister of Finance (who essentially delegates to the Directorate of Inland Revenue) the power to adjust any non-market related prices charged or paid by Namibian entities in cross-border transactions with related parties to arm's-length prices and to tax the Namibian entity as if the transactions had been carried out at market-related prices.
In terms of the normal penalty provisions of the Income Tax Act, the Directorate of Inland Revenue may levy penalties of up to 200% on any amount of underpaid tax. Consequently, the Inland Revenue may invoke such provisions in the event that a taxpayer’s taxable income is understated as a result of prices that were charged in affected transactions, which were not carried out at arm’s length. Further, interest will be charged on the unpaid amounts at 20% per annum.
The Minister of Finance may, if any amount of financial assistance provided by a foreign connected person is excessive in relation to a company’s fixed capital (being share capital, share premium, accumulated profits, whether capital or not), disallow, for income tax purposes, the deduction of any interest or other charges payable by the Namibian person on the ‘excessive portion’ of the financial assistance provided by the foreigner.
An amendment to Section 95A was gazetted, effective 1 January 2023, whereby a deduction of any excess interest expenses paid to non-resident shareholders and any realised foreign exchange losses will be disallowed if it is determined that the debt-to-fixed capital ratio from the foreign shareholders (and related parties) exceeds a ratio of three-to-one.
NamRA may be approached for approval to exceed the above threshold, taking into account the circumstances and risks associated with the business of the taxpayer.
Controlled foreign companies (CFCs)
CFC rules are not applicable in Namibia.