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Dynamic Research Journals (DRJ)

Journal of Economics and Finance (DRJ-JEF)


Volume 1 ~ Issue 1 (October, 2016) pp: 13-21
www.dynamicresearchjournals.org

Transfer Pricing: A Zimbabwean brief


1
Tapiwa Dalu, 2Ruvimbo Gillian Dalu, 3Tatenda Archibald Matibiri and 4Patience Chido Makomeke

Received 27 October, 2016; Accepted 30 October, 2016; Published 07 November, 2016 The author(s)
2016. Published with open access at www.dynamicresearchjournals.org

Abstract: Transfer pricing negative impact on fiscal revenue generation is a topic that has not been well
documented and discussed. There isnt much major empirical literature that analyses how these issues negatively
affects tax revenue generation and their major impact on poverty and development mitigation in less developing
countries like Zimbabwe, Malawi, Mozambique and Zambia among others. This paper examines, the methods of
transfer pricing employed Zimbabwe, which includes profit methods and traditional transaction methods. Factors
affecting transfer pricing such as cultural influence and legal requirements are also explained. The paper further
examines the effects of transfer pricing especially, in the area of decreasing tax revenue. The paper recommends
that Zimbabwe Revenue Authority (ZIMRA) and Zimbabwean government that they should come up with proper and
clear legislation for transfer pricing.
Keywords: Transfer pricing, Zimbabwe, Tax, Revenue, ZIMRA

Corresponding Author: T. Dalu tpdalu@gmail.com


Reference to this paper should be made as follows: Dalu, T., Dalu, G. R.., Matibiri, A. T., and Makomeke, C. P., (2016) Transfer Pricing: A
Zimbabwean brief, Dynamic Research Journals Journal of Economics and Finance, Vol 1, Issue 1, pp 13-21.

I. INTRODUCTION
The Africa Competitiveness report (2011) and Karen Miller (2012) highlights that despite the global
recession, Africa has averaged annual GDP growth of 5.2% between 2001 and 2011, a fact that emphasizes why so
many investors increasingly see it as a destination for opportunity and growth. The Economist (2011) summed up
the global sentiment regarding the position for Africas economy in its cover story, Africa Rising. As highlighted
in the article, Africas economy is anticipated to grow significantly in the near future, at the same time the number
multinational corporations expanding their footprint on the continent will rise with the prospect of increased
investment, transfer pricing would be of more focus in the region.
Africa boasts vast mineral resources but in spite of being well gifted it has struggled to develop its
economies over the past 30 years. Most Africans nations are suffering from poverty and are living on less than US$2
per day. Over the years Africa has stood as a key for industrialised economies in Europe, America and of late Asia
through the supply of raw materials. In addition to abundant unfair mechanisms on Africa such as externalisation of
monies, smuggling of precious minerals, and continuous trade in raw materials without any desire to add value,
Africa has for a long time suffered from the threatening disease of transfer pricing.
Mugano (2012) stated that the elimination of constraints on capital flows in the majority of developing
nations under the World Bank and IMF supported structural adjustment programmes (SAPs) has helped a lot in
assisting destructive transfer pricing. Hence we note that according to the recent data or surveys, it is true that a
number of Sub-Saharan African countries have not been spared from revenue losses ensuing from extensive illegal
transfer pricing. Between the years 2005 and 2008 the five countries (Angola, Namibia, Mozambique, South Africa
and Zimbabwe) have scientifically experienced a growth of capital losses resulting from transfer pricing (trade
mispricing), with transfer pricing contributing more than 60%. Namibia at an aggregated level, is the most affected
suffering almost a 232% growth in capital losses through transfer pricing (trade mispricing). Mozambique and South
Africa follow it with 212% and 130% growth in capital losses respectively. In all the cases, percentage losses are
more distinct in the case of capital losses originating from trading with the European Union (EU).
These developments have meant that African tax authorities (administrators) are now more attentive that
effective transfer pricing guidelines are necessary to ensure that multinationals account and pay taxes on the correct
amount of profits they make in developing countries like Africa. We know that there are a number of issues
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surrounding the complexity of transfer pricing still remains a stumbling block for many African tax authorities.
Akpojevwa (2014) highlighted that as goods and services are exchanged, between subsidiaries of an organisation,
what values or prices, are assigned to these exchanges or transfers? Is it the market price or historical cost or some
version of either? Hence as with other techniques, transfer pricing ought to be viewed in the perception of a total
system. Transfer pricing is often viewed, in the context of, one subsidiary (in a home country) supplying a product
or service to another subsidiary (abroad). More essentially, transfer price data, affects many precarious decisions
regarding, the procurement and distribution of an organisations resources, just as prices in the whole economy
affect choices concerning, the distribution of a nations resources.
Zimbabwe Environmental Law Society report (2014) stated that the worst affected country by trade
mispricing and under valuation of diamonds is Zimbabwe, which lost a projected $770 million in taxable revenues
on exports to United Arab Emirates (UAE) between the period 2008 and 2012 due to an average 50%
undervaluation of its diamonds. A report by the African Development Bank and Global Financial Integrity,
concluded that the illicit outflow of resources from Africa is about four times Africas current external debt or as
much as $1,4 trillion between 1980 and 2009. The report also mentioned that the Democratic Republic of Congo
(DRC) lost about $66,2 million in 2013 under similar circumstances.
While South Africa has relatively developed trade mispricing rules for years, the rest of the African
continent is of late showing progress in the matter. Kenya, Malawi and Uganda are making their way to the forefront
with the latest introduction of their formal transfer pricing (trade mispricing) legislation, while legislation is in the
pipeline in Ghana, Nigeria, Tanzania and Zimbabwe (Douglas 2012). There are various issues facing tax authorities
with regards to transfer pricing in African countries. The biggest problem we have in the African region is that there
is no local comparable data. We have had lots of pushback from the revenue authorities stating that they are not
comfortable with the European benchmarking because if the concern of non-comparability between a growing,
developing continent like Africa with Europe which is in a relatively motionless stage of growing.

II. LITERATURE REVIEW


Kayode (2003), states that transfer pricing is the price attached to services and goods being exchanged
among divisions or subsidiaries, operating under the shelter of a central management. According to Smith (2002),
transfer pricing manage transaction, among subsidiaries or divisions of a firm that is, for firms operating in a single
tax jurisdiction, transfer prices mainly assist the purpose of tracing internal businesses and allocating costs to
different undertakings. Dean et al (2008) define transfer pricing as goods and services that are transmitted, between
members of a business family including parent to affiliate, affiliate to parent and between affiliates. According to
Mueller Gernon and Meek (1997) highlights that the need for determining a transfer price happens, when goods or
services are traded, between organisational units of the same company (for example, royalties for incorporeal rights,
charges for technical services, charges for administrative and managerial services, relocations of finished goods for
resale), and Okoye (2011) states that transfer price is a price used to measure the value of goods or services supplied
by one division to another division, within a company. He also augments that, it is used as a base to appraise the
revenue accruing to the selling division, and the expenses or costs incurred by the buying subsidiary. Hence we note
that a transfer price is a substitute for a market price. It is usually used when one affiliate of an organisation sells to
another. The transfer pricing scheme places a monetary value on intra-firm exchanges that occur, between operating
units.
Ezejelue (2008) notes that domestic transfer pricing, between subsidiaries, branches, affiliates or divisions
is used to evaluate, control, and motivate divisional mangers towards companywide goals. Hence, the major criteria
in setting local transfer prices include goal similarity, divisional independence and performance assessment.
However, the issue of transfer pricing adopts a more complex stance, when it becomes international, involving
multinational companies engaged in cross border trade. The complex nature of international transfer pricing is due to
the fact, that mistrust often arises on the part of governments multinationals rig transfer prices to avoid taxation.
Bradley (1991) states that, the international transfer pricing rule is influenced by the ensuing key objectives:
minimising taxes, minimising funds internationally, avoiding exchange controls and limits (quotas), minimising
tariff, minimising exchange risks, optimising managerial inducements and performance appraisal and increasing
share of profits from joint ventures. The multinational companies are the main players in transfer pricing across
international borders across Africa.
Due to progression organisations sometimes decentralise their activities or functions. This decentralisation
may be within the home country of the company or abroad, when such affiliates are established abroad, they are
managed separately because, it has become a multinational company. Though, they are managed separately, they

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have common corporate objectives to achieve their goals. Ezejelue (2008) highlights that the problem of transfer
pricing emanates, where in a decentralised organisation, divisional managers run their divisions as a semi-
independent unit, and the divisional performance is evaluated by top management on a profit based criterion.
Whenever products, services or components are transferred from one division to another, either as an intermediate
product for further processing or as a final product for sale to an external market, a transfer price must be set. A
transfer price is a price agreed upon between two decentralized profit centre divisions for selling and buying a
product, or a service or a component (Ezejelue, 2008). The objectives of the paper is to explain the objective of
transfer pricing and examine the effects it has on the host nation
Hence we note that if a multinational company was to manipulate transfer prices in order to minimise
global tax burdens, then they is expectation that the a countries tax rate will have an effect on the scale of intra firm
trade flows between Zimbabwe and that country. This is done through shifting profits between countries through
underpricing goods sold to subsidiary firms in the low-tax countries (especially the British Virgin Islands) and
overprice goods sold by subsidiary in low-tax countries, following the opposite pattern for transactions with
subsidiaries in high-tax countries. We therefore realise that imploring such a stratagem would put forward that intra
firm trade flows from (to) low-tax country subsidiaries should be high (low) relative to intra firm trade flows from
(to) high-tax country subsidiaries, ceteris paribus. We therefore note these tax considerations indicate that
Zimbabwean intra firm trade balances would be more favourable with low-tax countries than with high-tax
countries.
As highlighted by Kant (1995) and Horst (1971), a simple model can be developed that generates this
likelihood. Consider a multinational company with some gradation of market power that is operating in two or more
countries, producing and selling in each country, and also exporting part of its output from the Zimbabwe (M1) to
the subsidiary abroad (M2). Lets assume that the subsidiary is fully owned (Kant, 1995).
Profit functions for operations in the two nations would be stated as follows using the equations:

M1 1 = R1 (s1) C1 (s1 + n) + pn,


M2 2 = R2 (s2) C2 (s2 n) pn,

Where 1 is profit in the home country (M1), which hinge on total revenues TR1 which is a function of
costs (C1) and sales (s1) that are factors of production. This production includes all the goods sold at home and those
exported to the associate company abroad (n). The output (sales) that is exported to the associate abroad is given the
transfer price p. Contemplating the case were the tax rates in Zimbabwe are greater than tax rates abroad (tz1 > tm2)
and suspension is allowed. Lets consider y as representing the portion of profits that are repatriated. The effective
tax rate (et) on income earned from the associate country is then
(3) et2 = tm2+(tz1 tm2) y

Hence the firms global operations net profit function would be:

(4) = (1- tz1)1 + (1 et2)2


To exemplify how a firm may select a transfer price in order to maximise these net profits, lets consider
the imitative of equation (4) with deference to the transfer price p.
(5) p= (1 tz1)n (1 et2)n

Substituting et2 in equation (3):

(6) p = [(tz1 t m2) (1 y)] n.


Hence, if tz1 > tm2, our expression is negative, and the overall firms net profits are decreasing with the
transfer price. Thus, firms have an enticement to underprice their goods sold to low-tax countries in order to shift
profits, ceteris paribus assuming that the transfer price p is only one that is, firms keep just one set of accounting
books. However in reality firms keep more than one set of accounting books, using one established price to

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minimise tax liabilities and other sets of prices for other purposes, such as determining the relative performance of
associates.
This analysis implies that firms will want to charge the lowest transfer price possible when t1>t2. Kant
(1990), however highlights that, two considerations may inhibit with this incentive that is,
1. a firm may be subjected to penalties if its handling of transfer prices is too scandalous. If the likelihood of
receiving a penalty escalates as the transfer price is more from the arms length price, the firm will likely
elect a transfer price that stabilises the gain from profit shifting with the likelihood of a penalty. This
contemplation alters the degree of transfer price management, but would not modify the desired course of
underpricing or overpricing.
2. subsidiaries are not usually wholly owned and thus this tends to create a profit shifting incentive, as a firm
may overprice consignments to subsidiaries to transfer profits to sources to wholly owned subsidiaries and
away from partially owned subsidiaries assuming that the firms are free to influence transfer prices without
the need to be receptive to the profits of their lesser interests.

III. RELEVANT REGULATIONS AND RULINGS IN ZIMBABWE


Though Zimbabwe currently has no precise transfer pricing provisions in its Tax Acts, anti-avoidance
provisions serve to ensure tax compliance. There are a lot of these avoidance procedures as highlighted below:
Section 19 of the Income Tax Act [Chapter 23:09]: Special provisions relating to persons carrying on
business which extends beyond Zimbabwe
Where the trade of any person extends across borders and the Commissioner is satisfied that it is impossible
or impracticable to determine the taxable income derived by such person from sources in Zimbabwe in the manner
otherwise provided the Act, such person shall submit proposals for the determination of his taxable income to the
Commissioner in a prescribed format. The Commissioner can accept such proposal and the taxable income
determined for any year of assessment shall be deemed to be the taxable income of the respective taxpayer for that
year. Hence we note that in cases, were no such proposals have been submitted, or if the Commissioner is not
satisfied with the proposals submitted, the Commissioner may determine the taxable income in a manner that
appears to him as the most appropriate, taking into account the circumstances of the case.

Section 23 of the Income Tax Act [Chapter 23:06]: Special provisions relating to determination of taxable
income of persons buying and selling any property at a price in excess of or less than the fair market price and of
non-resident persons exporting products of Zimbabwe without prior sale
The Commissioner may regulate the fair market price of either movable or immovable in deference of persons
carrying on trade in Zimbabwe where:
(a) Property is sold at less than the fair market price or
(b) Property is purchased at a price in excess of the fair market price.

Section 24 of the Income Tax Act [Chapter 23:06]: Special provisions relating to determination of taxable
income in accordance with double taxation agreements
The section states that the Commissioner may:
(a) If any person
i. carrying on business across the borders of Zimbabwe and participates openly or circuitously in the
management, control or capitalisation of a business carried on by some other person in Zimbabwe, or
ii. carrying on business in Zimbabwe and participates openly or circuitously in the management, control or
capitalisation of a business carried on by other person outside Zimbabwe, or
iii. participates openly or circuitously in the management, control or capitalisation both of a business carried
on in Zimbabwe by some other person and of a business carried on outside Zimbabwe by some other
person; and
(b) If circumstances are made or imposed between any of the persons stated in paragraph (a) in their business or
financial relations which, in the view of the Commissioner, differ from those which would be made amongst two
persons trading with each other at arms length, the Commissioner may decide the taxable income of the person
trading in Zimbabwe as if such circumstances or conditions had not been made or imposed but in agreement with the
conditions which, in his opinion, might be likely to have been made or enforced amongst two persons dealing at
arms length.

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Section 98 of the Income Tax Act [Chapter 23:06]: Tax avoidance


Where any transaction, operation or scheme (including a transaction, operation or scheme involving the
alienation of property) has been entered into or carried out, which has the effect of avoiding or postponing liability
for any tax or of reducing the amount of such liability, and which in the opinion of the Commissioner, having regard
to the circumstances under which the transaction, operation or scheme was entered into or carried out
(a) was entered into or carried out by means or in a manner which would not normally be employed in the entering
into or carrying out of a transaction, operation or scheme of the nature of the transaction, operation or scheme in
question; or
(b) has created rights or obligations which would not normally be created between persons dealing at arms length
under a transaction, operation or scheme of the nature of the transaction, operation or scheme in question;

and the Commissioner is of the opinion that the avoidance or postponement of such liability or the reduction of the
amount of such liability was the sole purpose or one of the main purposes of the transaction, operation or scheme,
the Commissioner shall determine the liability for any tax and the amount thereof as if the transaction, operation or
scheme had not been entered into or carried out, or in such manner as in the circumstances of the case he considers
appropriate for the prevention or diminution of such avoidance, postponement or reduction.

Section 16 (1) (r) of the Income Tax Act [Chapter 23:06]


In the case of expenditure incurred on general administration and management in favor of a company of
which the taxpayer is the subsidiary or holding company or (where the company is a foreign company) the local
branch incurred after the commencement of trade or the production of income, any amount in excess of 1% of the
amount obtained by applying the following formula:
A (B + C)
Where:
A - Represents the total expenditure qualifying for deduction in terms of Section 15(2)
B - Represents the expenditure on general administration and management paid outside Zimbabwe by such
local branch or subsidiary, whether or not such expenditure was incurred by the head office of that foreign
company;
C - Represents expenditure qualifying for deduction in terms of section 15(2)

Section 8 as read with Second Schedule paragraph 4 and paragraph 12 of the Income Tax Act [Chapter
23:06]
Where trading stock or farm trading stock is disposed of or donated in pursuance of a scheme, transaction
or operation the sole or main purpose which is to avoid, postpone or reduce tax liability, the Commissioner is
empowered to determine the amount such stock would have realized had it been disposed of by sale in the ordinary
course of trade

Section 14 of the Capital Gains Tax Act [Chapter 23:01]: Determination of fair market price of specified
assets
Where a person purchases a specified asset from any other person at a price in excess of the fair market
price or where he sells a specified asset to any other person at a price less than the fair market price the
Commissioner may, for the purpose of determining the capital gain or assessed capital loss, as the case may be, of
such first-mentioned person, determine the fair market price at which such purchase or sale shall be taken into his
accounts or returns for assessment

Section 77 of the Value Added Tax Act [Chapter 23:01]: Schemes for obtaining undue tax benefits
Whenever the Commissioner is satisfied that, any scheme has been entered into or carried out that has the effect
of granting a tax benefit to any person and having regard to the substance of the scheme:
(a) Was arrived at or carried out by means or in a way which would not normally be engaged for bona fide
business purposes, and has the influence of granting a tax benefit,
(b) Has produced rights or obligations which would not usually be formed between persons trading at arms
length,
(c) Was entered into or voted for solely or mainly for the resolution of obtaining a tax benefit,
(d) Does not matter whether the scheme was entered into or carried before or after the fixed date.

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The Commissioner shall determine the tax liability imposed by the Act, and the decision is subject to objection
and appeal but however until proven to the contrary, it shall be presumed that the transaction was done mainly for
the purpose of obtaining an undue tax benefit.

IV. MACRO PERSPECTIVE: TRANSFER PRICING AND THE ECONOMY


Transfer pricing plays an important role in the tactical decisions done by multinational corporations. There
is are lots of literature that studies the interrelationship between transfer pricing and the larger economy after
looking ahead of the firm level. Kant (1990; 1995) highlights that the impact of transfer pricing on intra-company
trade and government revenues. Collins et al. (1998) and Clausing (1998) stated that foreign direct investment may
be negatively impacted by high tax rates, leading to forceful transfer pricing policies. Smith (2002) noted that firms
can use transfer pricing to the demise of nation specific goals which are growth, productivity, and employment as
highlighted in Zimbabwe were most firms are taking advantage of the lapse in legislation with regards to transfer
pricing. Given that taxation is a serious constituent of Zimbabwes fiscal policy, transfer pricing endangers the
function of tax as an effective resource redistribution and results in entrenchment of poverty and denial of economic
emancipation of the people. To understand the wider implications of transfer pricing, there are various studies that
demonstrate the possible links between transfer pricing and aggregate export price indices, stock market surveys,
and evaluations of corporate performance.
Eden et al. (2005) addressed the impact of transfer pricing penalties impact the profits of multinational
corporations. Their proposition was that if these multinational firms were controlling transfer prices to shift profits
out of the home country, then the introduction of transfer pricing penalties would decrease their incentive for this
behaviour, resulting in reduced cash flows in the home country and lower stock market. Looking at Zimbabwe at
large, the absence of clear legislation has greatly led to shrinkage of revenue base and high tax evasion and this is
further worsened by the lack of knowledge amongst the revenue officers in the authority (Dalu et al, 2012).
According to Bernard et al. (2008), they examined how transfer prices set by multinational corporations differ
between sovereign third parties and related party organisations, and the extent to which these variances are elastic to
product and market structure, firm characteristics, and government policy.
Bernard et al. (2008) argues that tax minimisation may play a critical role in transfer pricing pronouncements
made by firms, as organisations appear to make large price adjustments to variations in country tax and tariff rates.
They further argued that the gap narrows as the US dollar increases in value relative to the legal tender (currency) of
the foreign country, with the following implications that:
(i) intra-company trade plays an important role in the determination of cumulative export price indices, and
(ii) Organisations may be able to shield themselves from exchange rate variations using transfer pricing.

Furthermore, with transfer pricing, workers are often oppressed with arbitrary performance objectives with
insignificant rewards. The general justification is that of artificially high expenditures. As such workers operate
under pressure to meet the set corporate goals for a low salary. This diminishes their savings potential, well-being
and the wellbeing of their relations with the long term result of poverty.
Lastly, Bernard et al. (2008) questions the effectiveness of assessments of performance of multinational
corporations should integrate the effects of transfer pricing, insofar as the capability to purchase goods from
subsidiaries at lower prices may sway a firms size, and levels of productivity, innovation, and wages. In essence,
transfer pricing distorts performance indicators. When multinationals reports falsely losses, a wrong signal on the
business potential of the Zimbabwean economy is developed resulting in potential investors, who may be relying on
this information, concluding that the relevant business environment is unfriendly. By not investing in such
economies the result is a loss in both employment and national income.

V. TRANSFER PRICING METHODS


Largely, there are numerous transfer pricing techniques used. The technique chosen or used will depend on
the policy or the objectives that the organisation would want to achieve. Okoye (2011) states that transfer pricing
methods can be grouped into (i) market based transfer pricing, (ii) cost-based transfer pricing, and negotiated
transfer pricing. However Choi and Mueller (1992) recognise four methods of transfer pricing that is to say:
(i) The resale pricing method,
(ii) The cost-plus pricing method,
(iii) The comparable uncontrolled pricing method and
(iv) Other pricing methods.

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Ezejelue (2008) highlights the detailed regulation in respect of transfer pricing under Organisation for
Economic Cooperation and Development (OECD) rules or those issued by other nations in one form or another are
founded on the principle, that dealings between, related and subsidiary enterprises, should take place on an arms
length basis. Hence these regulations have resulted into numerous transfer pricing methods, which may be used to
determine the prices or value of property, goods, or services in cross-border businesses. Ezejelue (2008) went to
categorise or classify these transfer pricing methods into two distinct broad headings that is, traditional transaction
methods and profits methods.
We shall detail the methods affecting Zimbabwe and mostly preferred by the Commissioner General of
ZIMRA which are:
(a) Cost-plus method - This pricing method is particularly useful when semi-finished goods are transferred
between foreign associates or where a company acts as a subcontractor for another for example Lonrho
Fresh Exports with a marketing agent Lonrho BVI. This is functional when the cost incurred for providing
goods, services or property in a controlled business to a related buyer or customer are known. In this
method, a mark-up is added to tie conveying subsidiaries cost mainly used were the other methods are not
applicable.
(b) Comparable Uncontrolled Price method - This approach transfer prices are set by references to prices used
in comparable transactions, between independent companies or between, the corporation and an unrelated
third party (Abdel-Khalik and Lusk, 1974). The method is easy and appears to be the most acceptable
method in virtually all OECD member countries.

VI. ADMINISTRATIVE CHALLENGES


The internationally recognised arms length principle and the existing guidance on its application provide a
widely accepted framework for the determination of transfer pricing issues in Zimbabwe. The administrative
challenges that ZIMRA is facing today with respect to case selection and the auditing of transfer pricing cases is due
to the mere fact that guidance is continuously sought from the OECD Guidelines where the methods are considered
appropriate and at times may not apply to the Zimbabwean scenario.
Lack of specific penalties for transfer pricing but general penalty rules apply, that is, 100% penalties that
can be negotiated provided the justifications are accepted by the ZIMRA. Transfer pricing cases pose collective
challenges for ZIMRA, particularly in terms of the resources needed to manage them effectively. Similar resource
issues can arise for business and a particular challenge for ZIMRA and business alike is that transfer pricing cases
are very fact and circumstance dependent. The costs involved in a major transfer pricing audit or enquiry can be
significant as can the cost of steps taken by business to ensure they properly manage the tax implications of transfer
pricing. Furthermore, transfer pricing disputes can last for many years, thereby increasing uncertainty for business
around final tax outcomes.
ZIMRA and other tax authorities are increasingly aware of the need to make best use of their limited
resources and of the need to manage their relationship with business or taxpayers more effectively. Improving the
management of tax risk and developing relationships between ZIMRA and multinational corporations (large
companies) have been two of the primary focuses the organisation has embarked on. ZIMRA has also been let done
by some regional authorities who take time when engaged for joint audits involving more than one tax authority,
bedding out competent authorities in audit teams. Serious engagements between senior investigations officials of
revenue authorities and the boards of multinational corporations are particularly relevant to the management of
transfer pricing issues.
Closer co-operation between tax authorities through Advance Pricing Agreements (APA), Mutual
Agreement Procedures (MAP) and Joint Audits, which are non-existent in Zimbabwe, have the potential to further
improve the efficiency of transfer pricing audits and enquiries. Whilst, the Commissioner-General may make
advance tax rulings on any provision of the various tax legislation under his purview on his or her own initiative or
on application by any person interested in a transaction that is or may be liable to tax which have a binding effect,
the same rulings have been contested in the fiscal court and have been overturned.

VII. RECOMMENDATIONS
a) Also have specific transfer pricing legislation like many other African countries such as Botswana, Kenya,
Mozambique, South Africa, Nigeria, Uganda, and Kenya

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b) ZIMRA should introduce some form of regulation that allows them to adjust the pricing of related-party
transactions, as more countries are expected to introduce transfer pricing legislation or at least general
anti-avoidance rules combating the abuse of transfer pricing.
c) ZIMRA should intensify their capacity building efforts of Revenue Officers and investigators in the area of
trade mispricing given the difficult and speedy growth it has experienced in recent years. Of note is the
Kenya Revenue Authoritys dedicated transfer pricing team which includes 12 specialist officers
(expected to be increased to 25) who have been trained to aggressively pursue transfer pricing audits. The
increase in specialised staff will enable ZIMRA to police and enforce transfer pricing compliance better
(Mugano 2012).
d) The organisation should undertake special tax projects or audits from time to time to check on compliance
and plug the leakages due to trade mispricing.

VIII. CONCLUSION
As intra-company cross border trade expands, the practice of transfer pricing is framed by the popular press
as a practice that can be used to minimise corporate tax liabilities. Hence government should consider putting in
place relevant legislation that would enable ZIMRA to work more efficiently and effectively. We also that transfer
pricing has had a significant impact on the Zimbabwean economy as firm have sought to solve their corporate
transfer pricing problem through achieving a transfer pricing system that provides the right transfer pricing answer
from a tax perspective and satisfies the business needs of the firms with regards to internal incentives, strategy and
efficient use of resources. As the prevalence and complexity of cross border trade increases due to favourable
conditions internally and externally in Zimbabwe, ZIMRA should act swiftly in mitigating this transfer pricing issue
before it continues to lose billions of dollars through the illicit scheme.

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Transfer Pricing: A Zimbabwean brief

Biographical notes:
Tapiwa Dalu is a part-time researcher with DDTEC and a holder of Masters in Business Administration with the
Graduate School of Business, National University of Science and Technology. He also holds a BSc Honours in
Economics from the Department of Economics, and an executive certificate in Project Management from University
of Zimbabwe. His area of specialty is on audits, research and taxation. tpdalu@gmail.com

Ruvimbo Gillian Dalu is a Banc assurance officer with Ecobank Zimbabwe and she holds a BSc in Psychology
degree from the Womens University in Africa and also holds an executive certificate in Project Management from
the University of Zimbabwe. Her areas of specialty are insurance, marketing and trade. gillianmaramba@gmail.com

Tatenda Archibald Matibiri is a part-time researcher with DDTEC and he holds a BCom in Marketing from the
Nelson Mandela Metropolitan University. His areas of specialty are on taxation and trade. TMatibiri@zimra.co.zw

Patience Chido Makomeke is a part-time researcher with DDTEC and a holder of Masters in Business
Administration with the Graduate School of Business, National University of Science and Technology. She also
holds a BCom Banking and Finance from UNISA, and is also pursuing her ACCA studies. Her area of specialty is
on accounting, research and auditing. pcmakomeke@gmail.com

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