Zimbabwe

No taxation of combined operations is allowed in Zimbabwe, including where operations are conducted by more than one company.

Transfer pricing

Effective 1 January 2014, transfer pricing legislation was introduced as an extension of the general  ‘tax avoidance’ provisions. The specific provisions fall under section 98A and 98B as read with the 35th Schedule to the ITA.

This legislation was enhanced with effect from 1 January 2016 to enable the use of the Organisation for Economic Co-operation and Development (OECD) and United Nations (UN) guidelines in respect of cross-border transactions.

It is important to note that, in addition to cross-border transactions between connected persons, the law also covers internal (domestic) transactions between connected persons.

Businesses involved in related party transactions are required to prepare a transfer pricing document contemporaneously (by the due date for filing the respective CIT return) as well as file a transfer pricing return on an annual basis.

Section 98B was amended with effect from 1 January 2019 to accommodate the levying of penalties on additional taxes that arise from transfer pricing adjustment. The penalties are provided as follows:

• where contemporaneous transfer pricing documentation exists in relation to the transaction giving rise to the amended assessment and complies with the guidelines prescribed per the 35th Schedule to the ITA, a penalty of 10% of the shortfall amount will be payable
• where contemporaneous transfer pricing documentation does not exist in relation to the transaction giving rise to the amended assessment or does not comply with the guidelines prescribed in the 35th schedule, a penalty of 30% of the shortfall amount is payable
• If there is evidence of avoidance, reduction or postponement of liability to tax was actuated by the use of fraud or evasion, a 100% penalty is payable.

Thin capitalisation

The limit on the deductibility of interest is based on a company incurring interest charged by a subsidiary, a fellow subsidiary, or a holding company when the debt-to-equity ratio exceeds 3:1.

Controlled foreign companies (CFCs)

Zimbabwe currently has no CFC rules.