Understanding Transfer Pricing and Its Impact on Taxation in Tanzania

Abstract

Transfer Pricing (TP), the necessary function of pricing intra-group transactions, is often manipulated in developing economies like Tanzania. This mispricing is a critical concern as it allows Multinational Enterprises (MNEs) to shift profits to low-tax jurisdictions, reducing domestic taxable income and weakening fiscal capacity. This article examines Tanzania’s TP framework, assessing its alignment with the OECD Guidelines and the UN Model Tax Convention. A comparative review with South Africa and Kenya highlights divergent judicial interpretations of the arm’s length principle (ALP). Key Tanzanian cases (Aggreko, Alliance One, Atlas Copco) demonstrate evolving judicial approaches to economic substance. The study concludes that information asymmetries and capacity constraints challenge enforcement, recommending specialized training, improved pricing databases, Advance Pricing Agreements (APAs), and strengthened regional cooperation to safeguard Tanzania’s tax base.