Worldwide transfer pricing reference guide 2014

Zimbabwe (continued)
Relevant regulations and rulings (continued)
• The avoidance or postponement of tax liability or the reduction of the amount of such liability was the sole or one of the main
purpose of the transaction, operation or scheme
• Section 16 (1)(q) of the Income Tax Act [Chapter 23:06]
• Save as otherwise expressly provided in this Act, no deduction shall be made in respect of any expenditure incurred by a local branch
or subsidiary of a foreign company, or by a local company or subsidiary of a local company, in servicing any debt or debts contracted
in connection with the production of income to the extent that such debt or debts cause the person to exceed a debt to equity
ratio of 3 to 1
• Section 16 (1)(r) of the Income Tax Act [Chapter 23:06]
• In the case of expenditure incurred on general administration and management in favor of a company of which the taxpayer is the
subsidiary or holding company or (where the company is a foreign company) the local branch incurred after the commencement of
trade or the production of income, any amount in excess of 1% of the amount obtained by applying the following formula:
A – (B + C)
Where:
A represents the total expenditure qualifying for deduction in terms of Section 15
B represents the expenditure on general administration and management paid outside Zimbabwe by such local branch or subsidiary,
whether or not such expenditure was incurred by the head office of that foreign company;
C represents expenditure qualifying for deduction in terms of Section (2) of Section 15
• Second Schedule paragraph 4 and paragraph 12
• Where trading stock or farm trading stock is disposed of or donated in pursuance of a scheme, transaction or operation the sole or
main purpose which is to avoid, postpone or reduce tax liability, the Commissioner is empowered to determine the amount such stock
would have realized had it been disposed of by sale in the ordinary course of trade
• Determination of fair market price of specified assets (Section 14 of the Capital Gains Tax Act [Chapter 23:01])
• Where a person purchases a specified asset from any other person at a price in excess of the fair market price or where he sells a
specified asset to any other person at a price less than the fair market price the Commissioner may, for the purpose of determining the
capital gain or assessed capital loss, as the case may be, of such first-mentioned person, determine the fair market price at which such
purchase or sale shall be taken into his accounts or returns for assessment
• Schemes for obtaining undue tax benefits (Section 77 of the Value Added Tax Act [Chapter 23:01])
Whenever the Commissioner is satisfied that, any scheme has been entered into or carried out that has the effect of granting a tax
benefit to any person and having regard to the substance of the scheme:
• Was entered into or carried out by means or in a manner which would not normally be employed for bona fide business purposes,
other than the obtaining of a tax benefit
• Has created rights or obligations which would not normally be created between persons dealing at arm’s length
• Was entered into or carried out solely or mainly for the purpose of obtaining a tax benefit
The Commissioner shall determine the liability for any tax imposed by this Act, and the amount thereof, as if the scheme had not been
entered into or carried out, or in such manner as in the circumstances of the case he deems appropriate for the prevention or diminution
of such tax benefit.
• Proposed new legislation:
• Proposal to levy Capital Gains Tax on gains realized upon disposal of immovable property through cession
• Proposal to introduce legislation to curb evasion of payment of capital gains tax on disposal of property through share transfers
• Transactions between associates, employers and employees
• In any transaction between associates or between persons who are in an employer-employee relationship, the Commissioner may
distribute, apportion or allocate income, deductions or tax credits between the associates or persons as he or she considers necessary
to reflect the taxable income that would have accrued to them in an arm’s length transaction
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