Impact of New Transfer Pricing Regulations in Tanzania Classification: Nexia General
An Overview Classification: Nexia General
Transfer Pricing | Landscape 2018 – Tax Administration (Transfer Arm’s length principle Pricing) Regulations, 2018 (“New introduced in Section Regulations”) were introduced vide 33 of Income Tax Act Government Notice No 166 on 27 April 2004 2018, however, released in November 2018 2014 2004 2018 2014 – Income Tax (Transfer Pricing) Regulations, 2014 (“Old Regulations”) were introduced vide Government Notice No 27 and Transfer Pricing Guidelines were published Classification: Nexia General
Transfer Pricing | Introduction • Price charged for the “Controlled Transaction” between the “Associates” shall be computed having regard to the “Arm’s Length Principle” • Arm’s length principle shall be consistent with the OECD and UN Model Tax Convention on income and capital for the time being force Associates Associates Controlled Transaction Classification: Nexia General
Transfer Pricing | Introduction Associate as defined in Section 3 of the IT Act Partners in the same Branch and HQ - partnership* deemed associates In case of Entity Any one who is expected to act in accordance A person who either alone or together with associate; with the intention of other, who is not an or employee through one or more interposed entities, controls more than 50% of rights to income, voting power or capital Note: Individual and his relatives are also covered under the definition of Associate *unless tax authority is satisfied that it is not reasonable to expect that either individual will act in accordance with the intentions of the other Classification: Nexia General
Transfer Pricing | Introduction Controlled Transaction � Transaction between associates Arm’s Length Price � Denotes price between independent persons operating under the same or similar circumstances Classification: Nexia General
Methods and Process Classification: Nexia General
Transfer Pricing Methods Traditional Transaction Profit Transaction Other Method: Method: Method: CUP Method Transactional Hierarchy to Net Margin apply the Method As prescribed methods Resale price by the Method commissioner Profit Split Cost Plus Method Method Classification: Nexia General
Transfer Pricing Process Classification: Nexia General
Documentation Requirements Classification: Nexia General
Fixing the Jigsaw Puzzle! A taxpayer who has entered into controlled transactions with associates is required to prepare contemporaneous transfer pricing documentation. Industry Industry Organizational Controlled Analysis Analysis Structure Transaction Documents FAR and Method Selection Supporting Comparability TP Analysis Analysis Classification: Nexia General
Documentation Requirements � Organisational Structure � Other Supporting Documents/Information Description of group Relevant agreements and contracts entered into with � � Legal/ operational structure of group associates or with unrelated enterprises � Letters and correspondence documenting terms � Controlled Transaction � negotiated with the associates Description of the controlled transactions � Government publications, reports, studies, databases Description of each adjustments, if any � � Market research studies and technical publications of Description of functions performed, assets utilised and � � recognized national or international institutions risks assumed Price publications including stock exchange and � ALP Computation � commodity market quotations Record of transactions considered for determining � price of controlled transactions Analysis performed to evaluate comparability � Description of all methods considered and reasons for � selection of the most appropriate method Record of actual working for determining arm’s length � price Details of comparable data used in applying most � appropriate method Classification: Nexia General
Documentation Requirements Maintenance and Submission of Transfer Pricing Documentation Total transaction with Associates Less than TZS 10 Billion TZS 10 Billion or more New Regulation casts obligation on taxpayer for submission of TP documentation Penalty for contravening the requirement of contemporaneous documentation shall be minimum of 3500 currency points. (currently 1 currency point = TZS 15,000) Classification: Nexia General
Determination of Arm’s Length Price Classification: Nexia General
Key Aspects Important aspects for determination of Arm’s Length Price Range concept shall apply and Adjustment shall be made for arm’s length price shall be the the difference between median Arm’s length price shall be data point between of arm’s length range and 35 th percentile and the Average of the comparable the price of controlled 60 th percentile of the data transaction comparable dataset Price outside the Arm’s Comparable Data > 4 Comparable Data ≤ 4 length range Classification: Nexia General
Consequences of Non-Compliance Classification: Nexia General
Overview New Regulations has widen the powers of Commissioner If the commissioner has a reason to believe that the Reject (with reasons) the whole comparability analysis controlled transactions are not at arm’s length, he may make adjustment to reflect the arms length price May direct the taxpayer to resubmit the analysis after Commissioner may make his considering the commissioners own analysis, if he deems fit reasons for rejection Reject (with reasons) part of the comparability analysis Commissioner may make adjustments as Penalty for contravening arm’s appropriate length principal shall be 100% of amount adjusted Commissioner may call for additional information by serving a written notice on a person who may or may not be liable to tax Classification: Nexia General
Specific Transactions in the Regulations Classification: Nexia General
Overview Intra group services and intra group financing Taxpayer is required to demonstrate the following Services excluded from intra group services Intra group services have been actually rendered Shareholder or custodial activities � � Provision of such services has conferred an economic Duplicative services � � benefit or commercial value to business Services that provide incidental benefits or � Charge for the intra group services is justifiable and passive association profits � at arm’s length On call services � Other Points in the regulations Appropriate Method to determine arm’s length price shall be the cost of the intra group services rendered When services are rendered jointly to more than one associate, service charge (not directly identifiable) shall be allocated between associates based on “reasonable allocation criteria” such as number of computers, license, employee, net sales, etc. Taxpayer who directly provides or receives intra group financing (with or without consideration) shall determine the arm’s length interest rate for intra group financing Classification: Nexia General
Overview Taxpayer (may or may not legal owner) is required to determine Taxpayer (may or may not legal owner) is required to determine arm’s length price based on the comparability analysis in arm’s length price based on the comparability analysis in Arm’s length consideration to be determined in commensurate Arm’s length consideration to be determined in commensurate relation to development, enhancement, maintenance, relation to development, enhancement, maintenance, with the future expected benefit with the future expected benefit protection and exploitation of intangible property and other protection and exploitation of intangible property and other factors (expected benefits, commercial alternatives, etc) factors (expected benefits, commercial alternatives, etc) Intangible property Intangible property Owner of locally developed intangible property shall receive Owner of locally developed intangible property shall receive Owner of locally developed intangibles shall receive Owner of locally developed intangibles shall receive appropriate consideration for transfer of intangible outside. appropriate consideration for transfer of intangible outside. consideration for its contribution made on such Intangible consideration for its contribution made on such Intangible No royalty shall be paid if the same intangible is subsequently No royalty shall be paid if the same intangible is subsequently including marketing intangibles. including marketing intangibles. licensed back for use in Tanzania. licensed back for use in Tanzania. Commodity Transactions CUP method is the most appropriate method to benchmark commodity transactions Quoted spot prices may be used as CUP to determine arm’s length price Commodity includes physical goods such as grains, oil seeds and other goods obtained from the land, hydrocarbons and derivatives thereof Quoted spot price means price obtained in domestic or international market for the relevant period and includes price obtained from recognised statistical agencies or governmental agencies Classification: Nexia General
Advance Pricing Agreement Classification: Nexia General
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