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13.4.1. Main Rules

As per the provisions of the Income Tax Act of Namibia, transactions between related parties are required to be at arm's length. Accordingly, if there is a deviation in the values of cross border transactions or transactions with related parties as compared to the market value, the tax authorities are empowered to adjust the taxable income or disallow an expense or assess an additional income of the taxpayers. Practice Note (PN) 2/2006 of Namibia, further interprets Section 95A and provides guidelines in this regard which explain the provisions as also the procedure to be followed in determining the arm's length price.

Definition of Related Parties

According to the guidelines, 'Connected Person' in relation to a Namibian company constitutes:

  • its holding company,
  • its subsidiary company,
  • subsidiaries of the same holding company,
  • the company holding at least 20% of the resident companies share capital and
  • any other company that manages and controls a connected person

Applicable TP Methods

Following transfer pricing (TP) methods are generally accepted by the tax authorities:

  • Comparable uncontrolled price (CUP) method
  • Resale price method
  • Cost plus method
  • Transactional Net Margin Method (TNMM)
  • Profit split method

There is no formal hierarchy between the methods. Generally, the most appropriate method would depend on the facts and circumstances of each case and would require fewer analyses.

Use and Availability of Comparable

There is no specific requirement concerning comparable. In order to substantiate the transfer price, the use of comparable depends on facts and circumstances of each case.