Transfer Pricing Presentation Introduction to Digital Business TaxationIntroduction to Digital Business Taxation

Introduction to Digital Business Taxation

1. The
Zimbabwe Revenue
Authority
(ZIMRA) Transfer
Pricing Presentation
6/9/2024

2. Objectives
The main objectives of this presentation
is to highlight the following:
Transfer Pricing Background
Legislative Framework
Guidelines for Transfer Pricing
Documentation
Common Transfer Pricing Pitfalls
Common Tax Issues Over the Last Twelve
Months
6/9/2024

3. Transfer Pricing Background
6/9/2024
A number of African countries have, over the
past decade reformed their income tax
systems and adopted modern income tax
legislation with a view to ensure compatibility
with fundamental tax policy principles of
simplicity, equity, neutrality and consistency
with international best practices.
Governments want to earn more tax (or save
outflow of justified tax) and MNEs want the
flexibility to save taxes.

4. Transfer Pricing Background
TransferPricingisthesettingofthe
priceforgoodsandservicessoldbetween
relatedparties.
TransferPricingbecomesanissue
whenthepriceschargedforgoodsand
servicesareoverstatedorunderstatedin
otherwordsarenotarm’slength.
6/9/2024

5. Transfer Pricing Background
Arm’s Length Transaction
A transaction in which the buyers and sellers
of a product act independently and have no
relationship to each other.
The concept of an arm's lengthtransaction is
to ensure that both parties in the deal are
acting in their own self interest and are not
subject to any pressure or duress from the
other party.
6/9/2024

6. Legislative Framework
Section 23 of the ITA
In instances where persons buying and
selling any property at a price in excess of
or less than the fair market price,
adjustments can be made for tax
purposes.
Non-resident persons exporting products
of Zimbabwe without prior sale and a
proportionate amount shall be taxed in
Zimbabwe.
6/9/2024

7. Legislative Framework
Section 24 of the ITA
Deals with transactionsbetween
associatedenterpriseswheredouble
taxationagreementsexist.
Thebasicprincipleisthattransactions
betweentheassociatedenterprisesmust
becarriedoutinanarms’lengthmanner.
6/9/2024

8. Legislative Framework
Section98oftheIncomeTaxAct
Chapter23:06
Dealswithgeneralantitaxavoidance.
Itlooksattransactions,operationsor
schemeswhichhavethefollowingeffects
ontaxliabilities:
•Postponing
•Reducing
•Avoiding
6/9/2024

9. Legislative Framework
Section98oftheIncomeTaxAct
Chapter23:06continued
IfintheCommissioner’sopinionthemain
purposeoroneofthemainpurposesof
enteringintosucharrangementswasto
postpone,reduceoravoidpaymentoftax,
theCommissionermaymakeadjustments
forthepreventionordiminutionofsuch
avoidance,postponementorreductionof
thetaxpayable.
6/9/2024

10. Legislative Framework
Section98AoftheIncomeTaxAct
Chapter23:06
Dealswithincomesplittingbetween
associatedenterprises.
Ifthesoleormainpurposeofthe
arrangementistolowerthetaxpayable,
theCommissionermayadjustthetaxable
incomeofthetaxpayerandtheassociate
topreventanyreductionintaxpayable.
6/9/2024

11. Legislative Framework
Section 98B of the Income Tax Act
Chapter 23:06
Deals with transactionsbetween
associates,employersandemployees.
TheCommissionermaydothefollowing:
a)re-characterizethetransactionandtax
accordingly.
b)distribute,apportionorallocateincome,
deductionsortaxcreditsbetweenassociatesor
personsashedeemsnecessary.
Thisisdonetoreflectwhatshouldhave
happenedinanarms’lengthtransaction.
6/9/2024

12. Guidelines for Transfer Pricing
Documentation
We do not have specific TP Documentation
legislation which details what the clients
should maintain and submit to ZIMRA.
However we are currently using sections
39(3) and 44(1) of the Income Tax Act to
request for TP information.
We are working on the current TP
legislation so that it can be tweaked.
We have proposals for Transfer Pricing
Regulations and Guidelines to be
promulgated if approved by the Minister.
6/9/2024

13. Guidelines for Transfer
Pricing Documentation
OthertaxauthoritiesuseOECDor
UnitedNationsTPGuidelinesora
combinationofthetwowithsome
adjustments.
TheOECDandUNTPGhavenot
beenratifiedintermsofthe
constitutionandarenotlegislated
foruseinZimbabwe.
6/9/2024

14. Guidelines for Transfer
Pricing Documentation
ZIMRAdealswithtransferpricing
caseslookingatthefollowingamong
otherfactors:
a)Themarketandindustrytheclientis
operatingin.
b)Researchinformationheldbythe
client.
c)Functionalanalysis.
6/9/2024

15. Guidelines for Transfer
Pricing Documentation
Thefollowingaresomeofthedocuments
whichZIMRAexpectsclientstokeep:
Agreementsenteredintobetweenassociated
enterprises.
Informationpertainingtodiscussionswhichled
tothesignedagreementsi.e.contemporaneous
documentation.
TransferPricingpoliciesoftheenterprises.
Anydocumentationsupportingthetransfer
pricingpolicyoftheorganisationsuchas
researchinformationoncomparables.
6/9/2024

16. Common Transfer Pricing
Pitfalls
Failure to maintain transfer pricing
documentation such as transfer
pricing policies.
Lack of commercial data for
comparables.
Lack of in-depth
understanding/knowledge of transfer
pricing concepts.
6/9/2024

17. Common Transfer Pricing
Pitfalls
The form of the arrangements is
different from the substance.
Failure to justify that transactions
are arm’s length.
Failure and delays in submitting
information requested by ZIMRA.
6/9/2024

18. Common Tax Issues Over
the Last Twelve Months
Undueallocationofprofitsor
incomeoffshore.
Expensesallocatedonshore.
Questionable business
arrangementswithcompaniesin
countrieswhichoffertaxholidays,
incentivesorlowtaxrates.
Re-invoicingarrangements.
6/9/2024

19. Common Tax Issues Over
the Last Twelve Months
Intangibles-Unjustifiedpaymentof
royaltiesexpressedasapercentage
ofturnover.
Management, andtechnicalfees
beingexpressedasapercentageof
turnover.
Centralizedprocurementservices.
6/9/2024

20. Common Tax Issues Over the
Last Twelve Months
6/9/2024
Loansandfundingarrangements-
thincapitalizationandbacktoback
loans.
Continuoustaxlossesforcompanies
dealingwithrelatedparties.
AgreementswhichindicatethatWHT
isnotpaidbytheforeignservice
provider.
Abuse of Double Tax Agreement
through treaty shopping.

21. Common Tax Issues Over the
Last Twelve Months
Failuretogetinformationabout
arrangements with companies
operatinginTaxHavens
Failure to register for tax purposes
by a branch or a PE
Underpayment of tax
Non payment of tax
Non taxation of benefits
6/9/2024

22. Common Tax Issues Over
the Last Twelve Months
Tax evasion
Non submission of returns
Failure to pay tax despite payment
plans.
Late payment of tax
6/9/2024

23. 6/9/2024
I THANK YOU