The transfer pricing provisions in Rwanda are governed by the tax laws and the related Ministerial Orders which provide that any commercial or financial transaction, including cross border transaction between related parties, should be carried out at arm's-length i.e., values of transactions between related parties are determined on the basis of the conditions which would have been agreed between unrelated parties with respect to similar transactions.

Rwanda published new transfer pricing general rules via Ministerial Order No. 003/20/10/TC of 11 December 2020 which entered into force 14 December 2020. These rules are in line with the latest OECD transfer pricing guidelines and BEPS recommendations.

The new transfer pricing rules apply to controlled transactions or deemed controlled transactions between the following:

Resident and non-resident related parties;
Non-residents engaged directly/indirectly with a related non-resident person if the transaction is in relation to a permanent establishment of one of those related persons in Rwanda;
Resident and related/unrelated persons located in a country with a beneficial tax regime; and
Permanent establishment of a non-resident in Rwanda and related/ unrelated persons located in a country with a beneficial tax regime.

Deemed controlled transactions are transactions between unrelated persons but which fall under the category of controlled transactions since one of those persons is resident in a country or a place that provides a beneficial tax regime.

For transfer pricing purposes, ‘Beneficial Tax Regime’ means tax legislation of a country or any other tax jurisdiction where:

No income tax or tax on income including foreign-sourced income is levied at a maximum rate of 20%;
Tax breaks are granted to non-resident individuals or companies;
Taxpayer is not required to undertake substantial economic activity within the country or tax jurisdiction; or
Access to information about the corporate structure of legal entities, ownership of assets, other rights or economic transactions is not available.

Definition of Related Parties

According to the provisions, related parties/persons include any person who acts or is likely to act in accordance with the directions, opinions, or wishes of another person. In particular, the following persons are regarded as related persons:

Person who participates directly or indirectly in the management, control, or capital of the other;
Third person who participates directly or indirectly in the management, control or capital or both, control and capital of another person;
An individual and his/her spouse and their direct lineal ascendants or direct lineal descendants, and their relatives in the collateral lineage until at least the 3rd degree; and
Such persons as referred above who participate directly or indirectly in the management, control, or capital of an enterprise.

Applicable TP Methods

The following TP methods are applicable to the transactions between related parties:

Comparable uncontrolled price (CUP) method;
Resale price method;
Cost plus method;
Transactional net margin method (effective 14 December 2020);
Profit split method (effective 14 December 2020); and
Any other method that the tax authorities deem appropriate.

There is no formal hierarchy between the methods. The best method rule applies for the determination of the arm’s length price for domestic and cross-border transactions including a method other than the above-mentioned methods, provided it gives a result more consistent with the arm’s length principle.

Use and Availability of Comparable

The selection of comparables is required to be consistent with the functional analysis of the transaction. The comparability is undertaken with consideration of economic relevant factors of the arrangement, which include:

Characteristics of property or goods transferred;
Importance of functions performed, assets used, and risk assumed;
Contractual terms and conditions of the arrangements;
Economic circumstances; and
Business strategies.

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