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13.4.2. Specific TP Issues

Intra-Group Services

Multinational enterprises (MNEs) generally provide a wide range of services to their members from within the group, in respect of administrative, technical, and commercial activities. The cost of providing such services may be borne initially by the parent, by a specially designated group member (“a group services centre”) or by another group member, and then charged to the concerned members of the group. The critical issues are on the nature of intra-group services, whether the services are acceptable for taxation purposes, and how the applicable transfer prices can be determined.

The following factors are to be considered while determining the arm’s length price for intra-group services:

  • Whether intra-group services have in fact been rendered;
  • Whether the provision of such services has conferred an economic benefit or commercial value to the business that enhances its commercial position;
  • Whether the charge of intra-group financing is at arm's length interest rate;
  • Whether the arm’s length price is determined using appropriate methods, generally, the cost-plus method can be used.

Intangible Property

Intangible property for the taxation purposes is considered as an asset other than a physical asset or a financial asset and which is capable of being owned or controlled for use in commercial activities and whose use or transfer would be compensated had it occurred in a transaction between independent parties in comparable circumstances. These are assets valued for their intellectual or intangible contents which can be legally protected or not.

The intangible properties are broadly classified in two categories:

  • Trade intangibles such as patents created through risky and costly research and development know-how, designs and models that are used in producing a product or in providing a service; and
  • Marketing intangibles i.e. trademarks and trade names that are used in the exploitation of the products, customer lists, distribution channel, and so forth.

The following factors are to be considered for transactions involving the license or transfer of intangible property:

  • Whether the intangible property exist i.e. has been licensed for use or transferred;
  • Whether the intangible property confers economic or commercial value to the business;
  • What is the role of associated persons in undertaking the DEMPE functions i.e. the development, enhancement, maintenance, protection, and exploitation of the intangibles;
  • Whether the pricing of the intangible property is at arm’s length; and
  • Where the locally developed intangible property has been transferred outside of Tanzania, the owner must be compensated appropriately at the time of transfer and the property may not attract a royalty when licensed back for use in Tanzania.