By Florence Jambwa  &  Gamuchirai Dzitiro

Armed with revised laws and international standards, tax authorities like ZIMRA are intensifying efforts against a practice that costs the continent billions of dollars each year.

In the complex world of international tax, few issues generate as much heat and scrutiny as transfer pricing. For African nations like Zimbabwe, it’s not just a technical accounting term; it is a frontline in the fight for domestic revenue mobilisation. Simply put, transfer pricing relates to the rules and methods for pricing transactions between companies under common ownership or control. For example, when a mining subsidiary in Zimbabwe sells minerals to its parent company in Europe, the price set for that transaction is referred to as the “transfer price.”

The problem is erosion of the tax base

The issue occurs when multinational corporations (MNCs) manipulate these prices. By over-invoicing for goods, services, or intellectual property purchased from a related party abroad, a company can artificially inflate its costs in a high-tax country like Zimbabwe. Conversely, under-invoicing for exports shifts profits out of the country. The result is that the company’s taxable profit in Zimbabwe is minimised, and tax revenue that should fund public services is shifted to a lower-tax jurisdiction; a practice known as Base Erosion and Profit Shifting (BEPS).

For a resource-rich yet capital-starved continent like Africa, the impact of this tax evasion is staggering. The United Nations estimates that illicit financial flows, with transfer pricing abuse as a primary method, cost Africa over fifty billion dollars annually.

The solution lies in

1.  Embracing a new era of enforcement.
   Africa is no longer a passive observer. Following the lead of the OECD’s
   BEPS project, African countries have been rapidly fortifying their tax laws.
2. Equipping the fiscal authorities.
   Zimbabwe’s Income Tax Act, for instance, has robust transfer pricing regulations. These laws require the “Arm’s Length Principle”. This is the requirement that transactions between related parties be priced as if they were between two independent, unrelated companies.
3. Exploit the Power of Documentation
   The most powerful tool for fiscal authorities is the requirement for contemporaneous documentation. Companies must now prepare detailed master files and local files in advance, outlining their transfer pricing policies and demonstrating compliance with the arm’s length principle. During an audit, ZIMRA can demand this documentation, and failure to provide it can result in severe penalties and adjustments.
4. The need for focus on high-risk sectors.
   Scrutiny is particularly intense in the extractive industries (mining, oil, and gas) and with intra-group services, where valuing items such as management fees or brand royalties is highly subjective and susceptible to manipulation.

Striking the Balance

The challenge for governments is to combat profit shifting without creating a hostile environment for the genuine foreign direct investment they desperately need. The main goal should be fairness, not persecution.

For multinational companies operating in Zimbabwe and throughout Africa, the message is now clear: the era of opaque transfer pricing is over. Instead, robust compliance, supported by expert advice and transparent documentation, is no longer optional. It is the price of entry and the foundation for sustainable, long-term operations on the African continent.

Our take is that

There is a need for businesses to adopt a proactive approach. The increased focus on transfer pricing indicates Africa’s fiscal maturity. For businesses, this means that a proactive, well-documented transfer pricing strategy is one of the most vital investments they can make;transforming a potential reputational and financial risk into a demonstration of good corporate citizenship.