Transfer pricing regulations: Issued by Zimbabwe
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Transfer pricing regulations: Issued by Zimbabwe
On the 10th of May 2019 the Minister of Finance and Economic Development of Zimbabwe issued Statutory Instrument 109 of 2019 setting out the Zimbabwean Income Tax (Transfer Pricing Documentation) Regulations, 2019 (the “Regulations”). The Zimbabwean transfer pricing landscape, as it stands today and as it compares to that of South Africa, is summarised below.
The issued Regulations, which took effect on the 10th of May 2019, deal inter alia with:
- the content requirements of transfer pricing documentation in Zimbabwe;
- the time limits for submission; and
- the power of the Zimbabwean Commissioner of Taxes to request additional information in respect of transfer pricing.
The Regulations, therefore, provide the much anticipated detailed requirements in respect of transfer pricing documentation, which have not been addressed before by the Zimbabwean legislative provisions regarding transfer pricing as introduced in 2016 and to which additional provisions were added with effect from 1 January 2019.
The following table highlights some of the significant differences between the transfer pricing requirements in South Africa and Zimbabwe.
| South Africa | Zimbabwe | |
| Applicable to both in-country and cross-border related party transactions | No, only cross-border. | Yes. |
| Applicable to unrelated enterprises. | No, only applies to transactions between related parties. | Yes, transactions between unrelated parties may be deemed to be controlled transactions where a party is a resident in a jurisdiction considered to provide a taxable benefit. |
| Advanced Pricing Agreements | No. | Yes. |
| The time limit for submission of transfer pricing documentation upon request by Revenue Authority. | 21 days from date of request. | 7 days from date of request. |
| Penalties in respect of transfer pricing transactions and non-compliance for transfer pricing documentation. | Only for documentation. Normal income tax penalties would apply where transfer pricing adjustments are made. | Specific penalties in respect of both transfer pricing transactions and documentation. |
| Application of transfer pricing documentary requirements. | The South African regulations affect taxpayers from the 2016 or 2017 year of assessment depending on the nature of the taxpayer. | The Zimbabwean regulations took effect on 10 May 2019. |
An overview of some interesting aspects of the Zimbabwean transfer pricing landscape is set out below.
Penalties
With effect from 1 January 2019, non-compliance with transfer pricing legislation can result in any of the following penalties, which will apply in addition to a transfer pricing adjustment (which will result in additional income tax at 25.75%):
- 10% of the shortfall in tax liability where the transactions are not at arm’s length, but contemporaneous transfer pricing documentation is available;
- 30% of the shortfall where the transfer pricing rules are not complied with or where contemporaneous transfer pricing documentation does not exist;
- 100% where it is evident that there is tax evasion or a fraudulent scheme in place.
Administration and Management fees
General Administration and Management fees charged by a related-party which results in an expense exceeding 1% of the entity’s total allowable deductions will not be deductible. Where the recipient of the service is a non-resident, the excess expenditure above the 1% threshold is taxed as a deemed dividend, which will be subject to Shareholders’ tax at 15%.
Thin Capitalisation Rules
The portion of an entity’s interest expense that causes its debt to equity ratio to exceed 3:1, is disallowed. The rule does not apply to interest paid to a Zimbabwean financial institution which is not a related party of the taxpayer.
Documentary Requirements
The Regulations require taxpayers to have contemporaneous documentation in place that verifies that the terms and conditions applying to transactions between related parties are consistent with the arm’s length principle. The documentation should include a group structure, an overview of the taxpayer’s business and a description of the related party transactions. In respect of the transfer prices applied, the document should also set out how the appropriate transfer pricing method was selected, all analyses and information relied on as well as the conclusion made in respect of the arm’s length nature of the transactions.
Time Limits for Submission of Documentation
The Regulations provide that the transfer pricing documentation should be contemporaneous, in that a taxpayer should have it place at the statutory tax return’s filing date. The Regulations do however not require the submission of the transfer pricing documentation along with the statutory tax return but states that the transfer pricing documentation should be submitted to the Commissioner of Taxes within seven days of receiving a written request from the Commissioner of Taxes.
For any assistance in this regard please contact one of our Transfer Pricing Specialists.
Authors:
Manager - Forvis Mazars
Tax Consultant – Forvis Mazars
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