New transfer pricing (TP) legislation was issued by the Government of Tanzania on 7 February 2014. The legislation is referred to as The Income Tax (Transfer Pricing) Regulations, 2014 (regulations). These regulations apply to a controlled transaction if a person who is party to the transaction is located in and subject to tax in the United Republic of Tanzania and the other party to the transaction is located in or outside the United Republic of Tanzania. The regulations expand on the rules found in section 33 of the Income Tax Act that deal with transactions between related persons.
In view of the regulations, both domestic and cross-border TP will apply. Companies that transact with related entities both in and outside Tanzania will be required to put in place a robust TP policy that supports their transactions.
Tanzania follows the OECD Guidelines and the regulations have adopted the same methods as set out in the OECD, namely the traditional methods (comparable uncontrolled price (CUP) method, the resale price (RP) method, and the cost plus (CP) method), as well as the transactional profit methods (transactional net margin method (TNMM) and the profits split method).
The regulations provide for compulsory TP documentation and stipulate that certain records and documents be included in the documentation. The documentation should be in place at the time of filing the income tax return for the year.
The regulations also contain special rules on intra-group services, intangible property and intra-group financing. The regulations also make provision for advanced pricing agreements (APAs) for certain future controlled transactions.
The penalties for non-compliance with the TP regulations are quite severe and a TP adjustment by the tax authority attracts a penalty equal to 100% of the underpayment of tax. Non-compliance is an offense and, upon conviction, the person is liable to imprisonment for a term not exceeding six months or to a fine not less than 50 million shillings, or both.