ZIMBABWE has introduced an advance version of the transfer pricing return that taxpayers are directed to file with their annual self-assessment corporate income tax return for the year ended 31 December 2019.
Transfer pricing is one of the most topical issues in the international tax discourse and represents one of the highest risks to the tax bases of most developing economies, including Africa.
According to the United Nations Economic Commission for Africa, the continent is losing approximately US$50 billion a year in illicit financial flows with abusive transfer pricing practices seen as one of the primary sources of these losses.
As such, the return supplements the new transfer pricing reporting requirements that Zimbabwe introduced in 2019. The Zimbabwe Revenue Authority (Zimra) has said that the transfer pricing return must be completed by all taxpayers with international and/or domestic related party transactions.
It is hoped that the information requested in the return will assist the tax authority to identify and assess potential risks to Zimbabwe’s tax base from abusive transfer pricing practices and ensure that adequate focus is directed at harnessing resources on the highest risk cases.
According to Zimra’s transfer pricing practice notes shared with Business Chronicle, the new return is based on the recommended return format set out in the African Tax Administrators Forum (ATAF) Suggested Approach to Drafting Transfer Pricing Legislation, and carries penalties for non-compliance.
The ATAF international taxation team has been instrumental in strengthening of the transfer pricing rules for member states within the continent. Zambia and Botswana have adopted similar strategies towards strengthening their transfer pricing regulations and supplementing existing legislation and regulations.
Having an effective transfer pricing legislation is a key element in African countries’ fight to combat abusive transfer pricing practices and is also important in providing taxpayers with greater tax certainty and encouraging voluntary compliance.
“This will provide greater tax certainty and reduce compliance costs for complaint taxpayers in Zimbabwe,” said ATAF in a statement.
Transfer pricing, according to the Tax Justice Network, happens whenever two companies that are part of the same multi-national group trade with each other. It is estimated that about a third of international trade happens within rather than between multi-nationals, that is, across national boundaries but within the same corporate group.
While the practice is not, in itself, illegal or necessarily abusive, tax experts argue that what is illegal or abusive is transfer mispricing, also known as transfer pricing manipulation or abusive transfer pricing.
ATAF was established by African revenue authorities in 2009 to improve the performance of tax administrations in Africa. It believes that better tax administration will enhance economic growth, increase accountability of the state to its citizens and more effectively mobilise domestic resources.
The sole regional tax body has an international taxation team in place, dedicated to assisting ATAF members at risk of tax losses from ineffective transfer pricing rules. It also helps member states in introducing new effective rules based on the ATAF Suggested Approach to Drafting Transfer Pricing Legislation and the Suggested Approach to Drafting Transfer Pricing Practice Notes.
The new regulations provide rules on a wide range of transfer pricing issues such as the use of the most appropriate transfer pricing method and specifying the documentation taxpayers must maintain to demonstrate their transfer pricing complies with the law.