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Helping you easily find everything you need to know about the rules and regulations regarding transfer pricing and Country by Country reporting for every country you do business with.
Global transfer pricing guide
Transfer pricing - Tanzania
01 Jan 20253 min read
This publication provides a high-level overview of Tanzania's transfer pricing rules and outlines who to contact for expert guidance in this area.
Contents
Introduction to transfer pricing in Tanzania
The TP rules in Tanzania are found in Section 33 of the Income Tax Act (ITA) 2004, which refers to the arm’s-length principle for transactions between associates.
The TP regulations were issued on 7 February 2014 and published in May 2014.
The regulations were later updated and published on the 27 April 2018 in the Tax Administration (TP) Regulations, 2018.
Tanzania is not a member of the OECD. However, the TRA recognize the OECD Guidelines and the UN manual.
The ITA 2004 and the 2018 TP regulations will however prevail if there are any inconsistencies between the regulations and the OECD/UN manual guidance.
As per the TP Regulations of 2018, the following are acceptable methods of determining arm’s length pricing:
Comparable Uncontrolled Price (CUP) method;
Resale Price Method;
Cost Plus Method;
Profit Split Method;
Transactional Net Margin Method; or
Any other method as prescribed by the Commissioner.
Where companies enter into transactions with related parties, they are required to determine the appropriate transfer prices, based on the arm’s length principle. The company is required to declare the nature and volume of all transactions with related parties during the year, along with the selected transfer pricing method.
Transfer pricing documentation
The Tanzania regulations require contemporaneous TP documentation to be prepared “for the year of income” in terms of Regulation 7(3).
The TP local file is required to be prepared for each entity.
TP documentation is required to be filled for entities that have related-party transaction(s) that exceed TZS10 billion in aggregate. Where transactions are less than TZS 10billion, there is no immediate requirement to file, however, TRA will generally require the TP documentation during their normal tax audits.
The TP documentation is normally prepared in English.
Taxpayers are required to disclose the amount of sales, purchases and loans made or received from associates in and outside Tanzania in its tax return.
The master file and local file may be prepared in line with the guidance provide in the OECD guidelines with consideration of the Tanzanian TP regulations.
The master file and local file must be submitted with the tax return. However, the taxpayer may apply in writing to the TRA for an extension of time.
The extension of time is limited to 30 days from the due date of filing the return.
The main risk lies in having the correct and appropriate documentation, in line with the TP Regulations. Failure to maintain documentation is the major issue we note.
Benchmarking is a key risk, with the authorities also carrying out their own benchmarking activities as part of their review.
The TRA may impose a penalty that starts from TZS52.5 million, depending on the currency points, if the taxpayer fails to comply with the TP regulations.
The TRA may impose a penalty of 100% of the tax shortfall where there is an adjustment based on the TRA’s TP reassessment.
Economic analysis and how to demonstrate an arm’s length result
The transactional profit methods may be applied if traditional transactional methods cannot be reliably applied.
However, the TP regulations reiterate that the most appropriate method should be applied regarding the nature and specific features of the transaction in question.
In applying the comparability factors when determining the arm’s-length price, the regulations require the results of a controlled transaction to be compared with the results of an uncontrolled transaction in the same year of income.
Therefore, the economic analysis and benchmarking study must be performed on an annual basis.
The regulations stipulate that where four or less comparable data points are considered the average is the arm’s-length result.
The arm’s result is to be the data points that are between the 35th percentile and 60th percentile.
The price should be adjusted to the median of the range if the result falls outside the arm’s-length range.
Advance Pricing Agreements (APAs), dispute avoidance and resolution
The Tanzanian TP regulations provides taxpayers with an opportunity to enter into unilateral, bilateral or multilateral APAs.
However, the TRA has indicated that taxpayers will only be able enter into APA’s until local expertise have been built.
Exemptions
There are no exemptions in complying with the TP Regulations in Tanzania.
Related developments
None.
Contact us
For further information on transfer pricing in Tanzania please contact:
