The diffusion of the OECD transfer pricing regulations: a multiple case-study (Rwanda, Uganda, Kenya) on agency and compliance in governing profit-shifting behaviour

Cassandra Vet

In their efforts to ring-fence their corporate tax revenue against multinational’s profits-shifting behaviour, Kenya (2006), Uganda (2011) and Rwanda (2020) codified transfer pricing regulations in national hard law. To this end, these countries made use of the dominant OECD transfer pricing guidelines that served as a template for reform. Yet, the compliance of developing countries to the OECD-led international transfer pricing regime is contested. Western states still largely dominate rule-setting procedures and the regulatory regime fails to offer a way out of the corporate tax paradigm that underlies the persistent nature of tax avoidance. Additionally, transfer pricing governance is cost- and resource-intensive and thereby potentially drains the scarce resources of revenue authorities. Rather than assuming international domination, this study sets out to untangle why Kenya, Uganda and Rwanda adopted the complex OECD-transfer pricing regime. Thereby, this project emphasizes the role of domestic political economy in theory on norm diffusion in international soft law regimes. Similar to other successful soft law regimes, market-based expectations, here through the primacy of investor attractiveness, played an essential role in making alternative policy-options less viable. Still, this multiple-case-study analysis reveals that countries opted for the concrete implementation of the OECD-transfer pricing rules not solely because of these market-based incentives, but that the presence of a supportive domestic political economy is also key. An in-depth investigation of the different anti-profit shifting regimes highlights how countries did abandon the global norm when domestic stakeholders such as civil society, special interest groups or the revenue authority did not support further implementation.