Requirements to keep Transfer Pricing documentation

The administration of Transfer Pricing (TP) documentation is governed under section 98 B of the Income Tax Act (Chapter 23:06) as read with the 35th schedule of the same Act. Further details pertaining to TP documentation are provided for in Statutory Instrument 109 of 2019.

Definition of Transfer Pricing

According to the United Nations Practical Manual on Transfer Pricing, 2017, transfer pricing is defined as the general term for the pricing of cross-border, intragroup transactions in goods, intangibles or services. It is the price paid for goods and services between two related economic entities. It embodies rules and methods for pricing transactions within and between enterprises under common ownership or control.

In taxation, transfer pricing becomes an issue if it results in prejudice to revenue. This happens when prices charged for goods and services between related parties are overstated or understated. Under such circumstances, the prices are said to be in contravention of the arm’s length.

Important Things to Know About Transfer Pricing Documentation: 

– Transfer pricing documentation provides a disclosure mechanism for the group’s TP policies and an analysis of related party transactions.

– The taxpayer must prepare and keep TP contemporaneous documentation. 

– Contemporaneous documentation means information, records and other documents, which exist or is brought into existence at the time the taxpayer is developing or implementing any arrangement that might raise transfer-pricing issues. 

– This documentation helps to prove that the taxpayers’ transactions satisfy the arm’s length principle. 

– Arm’s length principle is an internationally accepted standard which must be adopted for transfer pricing between related parties. 

– Transfer pricing documentation must be kept and submitted to ZIMRA in the English Language.

– Transfer pricing documentation shall be availed to ZIMRA within 7 days of written request and additional information may be requested.

Some of the Transfer Pricing Documentation Referred to:

– Business operations that includes history, recent changes, position relating to the organisation has targeted markets, divisions/subsidiaries or branches and the organogram.

– Details of the organisational structure of the group including details of all the entities under the holding company, their status as far as shareholding is concerned, the role each entity in the group is playing in line with the activities being carried out in the group.

– Explanation of the transactions which took place between the related parties and details of the comparables as stated in the provisions of the Income Tax (Chapter 23:06)

– Details and explanation of most appropriate and preferred transfer pricing methods and if necessary the party and the financial indicator which were tested if applicable.

– The process, which was done to identify comparable uncontrolled transactions considering paragraph 3 of the 35th Schedule of the Income Tax Act and details of any comparability adjustments, made. 

– Information on industry, economic analysis and budgets relied on.

– Information of any advance pricing agreements or any identical arrangements that were made elsewhere that are similar to the same situation. 

– Any other additional information of importance, which might assist in the determination of the taxpayer’s compliance with the arm’s length principle in light of the controlled transactions. 

-Disclaimer : This article was compiled by the Zimbabwe Revenue Authority for information purposes only. ZIMRA shall not accept responsibility for loss or damage arising from use of material in this article and no liability will attach to the Zimbabwe Revenue Authority. 

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