Taxed twice, adjusted once: Fixing the gaps in Tanzania’s transfer pricing framework

In Tanzania’s transfer pricing regime, the problem lies not in what is missing, rather in what is optional. Corresponding adjustments are already provided for in the Transfer Pricing Regulations, but they hinge on a single slippery word: “may” which makes it optional from the tax authority perspective.

Here is how it plays out. Two related Tanzanian companies enter into a sale and purchase transaction of a good. TRA audits one company and determines that the purchase price for the good is overstated and reduces the price which increases the taxable income of this company. But the other side of the transaction is often left untouched. The TRA may adjust it, but frequently does not. The result? One side pays additional tax assessed while the other does not receive the relief it deserves.

This is a contradiction as the same tax authority that adjusts one side of a transaction can choose to opt to ignore the impact on the other. Effectively, allowing the TRA to deny its own adjustment and the taxpayer bears the cost in what in theory should be a zero sum game since both companies are in Tanzania, there is overall no loss of tax to the Government.

The problem intensifies when cross border transactions are involved. Tanzania adjusts the price upward, but the counterparty country does not make a corresponding downward adjustment. The taxpayer is caught in the middle, taxed in both jurisdictions with no recourse.

Even where Double Taxation Agreements (DTAs) exist, most were signed between the 1960s and 1990s, a period when treaty language around Mutual Agreement Procedures (MAP) was vague and largely unenforceable. These early DTAs offered no binding timelines, no taxpayer safeguards and no obligation for competent authorities to resolve disputes. It was not until more recent OECD and UN model updates that MAP provisions began to include clearer procedural rights and accountability mechanisms.

So how do we fix this?

Let us start with the simplest win: make domestic corresponding adjustments automatic. If TRA adjusts one side of a transaction, it should be required to adjust the other. The current language “may adjust” invites inconsistency and undermines fairness. The same TRA that audits and adjusts one entity should not then have the option to ignore the impact on its counterparty.

Next, Tanzania should establish an independent competent authority for transfer pricing and cross border matters. This office would coordinate internal corresponding adjustments, negotiate MAPs, and issue Advance Pricing Agreements (APAs). It would serve as a central point of expertise and accountability, ensuring that taxpayers are not left to navigate conflicting demands alone.

APAs are another powerful tool. These are agreements between taxpayers and tax authorities that set transfer pricing methods in advance, reducing uncertainty and preventing disputes. Tanzania has the legal framework for APAs, but uptake has been slow. With proper resourcing and outreach, APAs could become a cornerstone of proactive compliance.

The good news? Tanzania has the tools to fix this. The Regulations are in place and the technical expertise exists. What is needed now is clarity, coordination, and commitment.