Transfer pricing (TP) provisions are governed by the Tanzania Income Tax Act and the transfer pricing regulations and guidelines, which were first introduced in the year 2014 and subsequently updated and replaced by the transfer pricing regulations issued in the year 2018. The tax laws of Tanzania provide that the transactions entered into between associates must be made at arm’s length price. Failing that, the tax authorities are empowered to readjust, reallocate, or re-characterize the income or price of the transaction in order to reflect the arm’s length price.
Although Tanzania is not a member of Organization for Economic Co-operation and Development (OECD), the tax authorities recognize the OECD guidelines and the United Nations’ transfer pricing manual (UN TP Manual). However, in case of inconsistencies, the tax laws and the TP regulations shall prevail over the OECD and UN documents.
The above TP regulations may apply to controlled transactions between:
- Residents, and
- A resident and a non-resident in Tanzania.
The term “Associates” as per tax laws includes below:
- An individual and a relative of the individual, who is acting in accordance with the intentions of the other;
- Partners in the same partnership, where the partner is acting in accordance with the intentions of the other; and
- An entity either alone or together with associate or associates (directly or indirectly through one or more interposed entities) has 50% or more of rights in capital, income, or voting power of the other entity.
Following TP methods are applicable to the transactions between related parties:
- Comparable uncontrolled price (CUP) method;
- Resale price method;
- Cost plus method;
- Transactional net margin method (TNMM);
- Profit split method; or
- Any other method as may be prescribed by the tax authorities from time to time.
The best method rule applies for determination of arm’s length price for domestic and cross-border transactions including a method other than the above-mentioned methods, provided it gives a result more consistent with the arm’s length principle.
A fresh benchmarking study is required to be done every year. The use of comparable depends on facts and circumstances of the transactions. Taxpayers may use internal or external comparables for determining the arm’s length price. While applying the comparability factor, the results of the controlled transaction are compared with the results of the uncontrolled transaction for the same tax year.