Introduction
Transfer pricing rules have become a critical focus for Zimbabwean tax authorities as they seek to protect the country’s tax base amid increasing cross-border and related-party transactions. The Zimbabwe Revenue Authority (ZIMRA) enforces transfer pricing regulations that largely mirror the OECD guidelines but also include specific local provisions. Understanding these rules is essential for businesses operating in Zimbabwe to avoid costly penalties and ensure compliance. This article provides a detailed overview of Zimbabwe’s transfer pricing framework, documentation requirements, accepted methods, and enforcement trends in 2025.
What is Transfer Pricing?
Transfer pricing refers to the pricing of transactions between related parties, such as subsidiaries of a multinational company or companies under common control. These transactions can include the sale of goods, provision of services, royalties, loans, and management fees. The key concern is that prices set between related parties might not reflect market conditions, potentially shifting profits to low-tax jurisdictions and eroding Zimbabwe’s tax revenues.
Zimbabwe’s Transfer Pricing Legal Framework
Zimbabwe’s transfer pricing rules are primarily contained in sections 98A and 98B of the Income Tax Act, with detailed regulations introduced in 2019. These rules apply to both domestic and international related-party transactions. The legislation enforces the arm’s length principle, which requires that transactions between associated persons be conducted as if they were between independent parties under comparable circumstances.
The regulations came into effect retrospectively from January 1, 2014, and were further clarified by amendments in subsequent years. Zimbabwe also requires taxpayers to submit transfer pricing documentation contemporaneously with their tax returns and to file a dedicated transfer pricing return disclosing related-party transactions.
Key Features of Zimbabwe’s Transfer Pricing Rules
Arm’s Length Principle and Adjustments
Zimbabwe adopts the arm’s length principle consistent with international standards such as the OECD Transfer Pricing Guidelines. If a transaction’s financial indicators fall outside the arm’s length range, ZIMRA may adjust the taxable income to the median of that range. This adjustment can apply to both domestic and international transactions.
Accepted Transfer Pricing Methods
Zimbabwe recognizes several transfer pricing methods aligned with OECD and UN guidelines, including:
- Comparable Uncontrolled Price (CUP) Method
- Resale Price Method
- Cost Plus Method
- Transactional Net Margin Method (TNMM)
- Profit Split Method
Taxpayers are expected to apply the most appropriate method based on the facts and circumstances of each transaction.
Documentation Requirements
Taxpayers must prepare contemporaneous transfer pricing documentation to support the arm’s length nature of their related-party transactions. Documentation should include:
- Description of the business and industry
- Details of related parties and transactions
- Functional analysis outlining the roles, assets, and risks of each party
- Selection and application of the transfer pricing method
- Financial data and comparables used
ZIMRA requires submission of this documentation within seven days of request, a notably shorter timeframe compared to some other jurisdictions.
Transfer Pricing Return
Since 2020, Zimbabwe mandates the filing of a transfer pricing return alongside the corporate income tax return for taxpayers engaged in related-party transactions. This return helps ZIMRA identify high-risk cases and focus audit resources efficiently.
Enforcement and Penalties
ZIMRA has become increasingly aggressive in enforcing transfer pricing rules, viewing transfer pricing as a major source of fiscal revenue loss. Penalties for non-compliance include:
- A penalty of 10% of the tax shortfall if contemporaneous documentation exists but prices are not at arm’s length
- A penalty of 30% of the tax shortfall if documentation is missing or rules are not followed
- A penalty of 100% of the tax shortfall in cases of tax evasion or fraudulent schemes
These penalties are in addition to the tax adjustments and interest charges.
Practical Tips for Compliance
- Maintain Detailed Documentation: Prepare and update transfer pricing documentation annually to reflect current transactions and business conditions.
- Conduct Functional and Economic Analysis: Understand the functions performed, assets used, and risks assumed by related parties to select the most appropriate transfer pricing method.
- Use Reliable Comparables: Base pricing on comparable transactions between independent parties to justify your transfer prices.
- File Transfer Pricing Returns Timely: Ensure the transfer pricing return is accurately completed and submitted with your tax return.
- Engage Transfer Pricing Experts: Consult with tax advisors experienced in Zimbabwe’s transfer pricing rules to navigate complexities and minimize risks.
- Monitor Legislative Changes: Stay informed on updates to transfer pricing regulations and enforcement practices to remain compliant.
Conclusion
Zimbabwe’s transfer pricing rules are closely aligned with international standards but come with specific local nuances and strict enforcement. Given the significant penalties and the growing focus of ZIMRA on related-party transactions, businesses operating in Zimbabwe must prioritize compliance by maintaining robust documentation, applying appropriate pricing methods, and submitting required returns on time.
Understanding and adhering to these rules not only mitigates tax risks but also enhances transparency and supports sustainable business operations within Zimbabwe’s evolving tax landscape.
