Most multinational companies based in Rwanda place a focus on complying with the country’s tax laws but one area that is often overlooked is compliance with Transfer Pricing (TP) legislation.They may not know that Rwanda currently has one of the friendliest TP regimes in the region.Rwanda’s regime provides a greater level of certainty for companies transacting across borders and a progressive model for the rest of East Africa.It’s clear that TP compliance has not received the attention that it deserves, perhaps because businesses are not aware of the law’s compliance obligations or they consider TP to be an area of low risk.However, the potential for TP adjustment should be a point of major concern for businesses in Rwanda. The tax law empowers the Commissioner General to adjust profits earned between related parties if he considers that the trading arrangements between related parties do not adhere to the arm’s length principle. The arm’s length principle requires that transfer prices charged between related parties are equivalent to those that would be charged between independent parties in the same circumstances.There are favourable areas which revenue authorities love to scrutinise. Examples include the pricing of sales between subsidiaries, payment of management fees and transfers of intangible properties such as goodwill, patents or brands.Transfer pricing was initially ignored by most revenue authorities and was largely the preserve of the U.S Internal Revenue Service. Now, TP has become a "low hanging fruit” for many tax authorities worldwide because of its subjective nature and also because most companies do not have adequate documentation to back up their pricing arrangements with their related parties.In 2009, The New York Times called transfer pricing the "one tax loophole open” in President Obama’s plan for international tax reform.Even previously tax-friendly countries, including China and India, are looking to fill their coffers by extracting more from US based multinational companies. Three years ago, China’s tax authorities issued new rules requiring foreign multinationals to submit extensive transfer-pricing documentation by year end. This was a dramatic change considering that foreign businesses were enjoying favourable tax treatment up until then.Closer home, Kenya, Tanzania and Uganda’s tax authorities have all sought to enforce TP or anti-avoidance legislation. Each of the three countries has TP regulations. We can expect scrutiny of TP to increase significantly in the years to come. TP is an easy target area for tax authorities in the region—including Rwanda.Rwanda’s TP legislation provides an opportunity for advance pricing agreements ("APAs”) with the revenue authority, a progressive development giving businesses operating in Rwanda a greater degree of certainty. Taxpayers can discuss and negotiate with the revenue authority on their TP arrangements and obtain an advance ruling confirming that their transfer pricing arrangement is appropriate.This system will greatly minimise the potential for future disputes and assessments. Generally, businesses operating in Africa face a number of uncertainties, including how tax authorities will handle their TP arrangements. Therefore, an opportunity to obtain some degree of certainty in Rwanda with regard to TP should be a welcome relief.In view of the TP risks, how should businesses cope? Businesses, particularly multinational companies, should seek APAs in which they seek approval of their TP methodology from Rwanda Revenue Authority (RRA) and also ensure that they have updated TP documentation and clear explanations of the methodologies used. However, it is important to appreciate that even where the documentation is perfect, it can still be challenged. Even so, an APA would greatly mitigate potential tax risk and exposure.Nelson Ogara is a Senior Tax Manager at PwC Rwanda