Itctransferpricing

Anti-avoidance is the immune system of the Income Tax Act [Chapter 23:06]. Taxpayers are entitled to arrange their affairs to pay the least tax the law permits, but they are not entitled to manufacture artificial arrangements whose real purpose is to defeat the charge to tax. Zimbabwe polices this line with a layered defence: a broad General Anti-Avoidance Rule (GAAR) in Section 98, a targeted income-splitting rule in Section 98A, a dedicated transfer-pricing regime in Section 98B read with the Thirty-Fifth Schedule, and a series of Specific Anti-Avoidance Rules (SAARs) scattered through Section 16 that cap or disallow particular related-party deductions. This lesson explains each layer, how they interlock, and how a practitioner determines which one applies.

The GAAR (Section 98) lets the Commissioner ignore and reconstruct any "transaction, operation or scheme" that (i) has the effect of avoiding, postponing or reducing a tax liability; (ii) was carried out either by abnormal means or manner (paragraph (a)) or created rights or obligations not normal between arm's-length parties (paragraph (b)); and (iii) had tax avoidance as its sole or one of its main purposes. Where all three are present, the Commissioner determines the tax "as if the transaction… had not been entered into", or in such other manner as is appropriate to undo the avoidance. The onus then shifts to the taxpayer: once the Commissioner forms the requisite opinion, the taxpayer must prove the innocence of purpose (failing which the additional-tax/penalty regime, up to 100%, is engaged — SDC Ltd (2) v ZIMRA 21-HH-338).

Section 98A (inserted by Act 1 of 2014, w.e.f. 1 January 2014) targets income splitting — an individual transferring income or income-producing property to an associate whose sole or main reason is to lower the combined tax. The Commissioner may adjust both parties' taxable income, having regard to the value, if any, given by the associate for the transfer.

Section 98B (substituted by the Finance (No. 2) Act 9 of 2015, w.e.f. 1 January 2016) is Zimbabwe's transfer-pricing rule. It requires that the taxable income from any "controlled transaction" with an associated person be consistent with the arm's-length principle — the conditions must not differ from those that would apply between independent persons in comparable transactions under comparable circumstances. Where they do, and tax is thereby avoided, reduced or postponed, the Commissioner includes the arm's-length amount in taxable income. Section 98B(4) extends the rule to transactions with persons in low-tax jurisdictions, whether or not associated. Adjustments attract a tiered penalty under Section 98B(2a): 100% of the shortfall where fraud or evasion is shown; 30% where there is no, or non-compliant, contemporaneous transfer-pricing documentation; and 10% where compliant documentation exists. Taxpayers must keep documentation (Section 98B(5)) and disclose controlled transactions in the prescribed return (Section 98B(6)/(7), inserted by Finance Act 1 of 2019).

The mechanics live in the Thirty-Fifth Schedule (made under Section 98B). It defines comparability by five factors (characteristics of property/services; functions, assets and risks; contractual terms; economic circumstances; business strategies); prescribes five approved methods (the Comparable Uncontrolled Price (CUP), Resale Price, Cost Plus, Transactional Net Margin (TNMM) and Transactional Profit Split methods), with the CUP preferred where equally reliable; introduces the arm's-length range and requires adjustments to be made to the median (50th percentile); and sets special rules for intra-group services (no charge for pure shareholder/stewardship costs) and intangibles, plus corresponding adjustments for domestic (Section 11 of the Schedule) and international (treaty/MAP) cases.

"Associated persons" is defined in Section 2A (and "control" in Section 2B), both inserted by Act 1 of 2014. The test is functional and wide: anyone who acts in accordance with the directions, requests, suggestions or wishes of another is an associate, and the subsection then deems near relatives, partners, controlled partnerships, trust beneficiaries and controlled companies to be associates.

Finally, the SAARs in Section 16 back-stop the general rules with bright-line caps that need no purpose enquiry: thin capitalisation disallowing interest on debt exceeding a 3 : 1 debt-to-equity ratio (paragraph (q), Finance Act 1 of 2018); a cap on management and administration fees paid to an associated enterprise at 0.75% (pre-production) / 1% (post-production) of a statutory base (paragraph (r)); disallowance of off-market foreign-loan interest (paragraph (s)); and a cap on royalties at the lower of 1.5% of turnover or the Thirty-Fifth-Schedule comparable value (paragraph (t), Finance (No. 2) Act 7 of 2024, w.e.f. 1 January 2025). Excess fees and royalties paid abroad or locally can also be deemed a dividend and taxed under the withholding regime (Sections 26(2)/28(2) — Withholding Taxes — Residents and Non-Residents).

The throughline is the arm's-length principle and the substance-over-form philosophy. This lesson walks each provision clause by clause, defines every term, works USD computations for an individual income-splitter, an SME paying related-party fees, and a multinational subsidiary on thin capitalisation and a transfer-pricing adjustment, integrates the Zimbabwean case law annotated in the Act, and closes with comparison tables and a determination decision tree. Accuracy governs throughout; nothing is asserted that the 27 May 2025 source Acts do not confirm.

Every tax system must answer a deceptively simple question: when does legitimate tax planning become impermissible tax avoidance? The classical statement of the taxpayer's freedom is that a person may "order his affairs so that the tax… is less than it otherwise would be". That freedom is real and protected. But it is bounded. Where an arrangement has no commercial substance and exists only, or mainly, to strip tax out of the system, the law steps in to disregard it.

Three concepts must be distinguished at the outset, because they carry very different consequences:

• Tax planning (mitigation) is the lawful arrangement of genuine transactions to minimise tax — for example, choosing to trade through a company taxed at 25% rather than as an individual taxed up to 40% (Corporate Income Tax in Zimbabwe), or timing a capital purchase to capture an allowance. It is legitimate.
• Tax avoidance is the use of artificial or abnormal arrangements whose dominant purpose is to defeat tax. It is not illegal in the criminal sense, but it is ineffective: the Commissioner may reconstruct the position and tax the taxpayer as if the artifice had not occurred. The GAAR and the transfer-pricing rules are aimed here.
• Tax evasion is the criminal under-declaration of income or over-claiming of deductions — fraud, false returns, hidden receipts. It attracts prosecution and the heaviest additional tax. Evasion is dealt with by the offence and additional-tax provisions (Provisional Tax, QPDs and PAYE Administration) and is the trigger for the 100% transfer-pricing penalty.

Why does this topic matter so much in Zimbabwe specifically? First, Zimbabwe is a source-based jurisdiction with significant inbound multinational investment in mining, agriculture, telecommunications, banking and fast-moving consumer goods (Tax Residence and Source of Income). Cross-border groups can shift profit out of the Zimbabwean tax net by manipulating the prices of intra-group goods, services, loans and royalties — exactly what transfer pricing is designed to prevent. Second, Zimbabwe's foreign-currency and exchange-rate history creates strong incentives to route value abroad, which the SAARs on foreign-loan interest and off-market exchange rates address. Third, closely held family companies create everyday income-splitting opportunities that Section 98A targets. Anti-avoidance is therefore one of the most heavily litigated areas of Zimbabwean tax — the Act itself annotates a long line of cases against Section 98 — and one of the highest-yield audit areas for ZIMRA.

Where does this sit in the chapter? It is a capstone, integrative topic. It assumes the deduction rules (Allowable Deductions and General Formula), the prohibited deductions including the related-party caps (Prohibited Deductions under section 16), the corporate rate and assessed-loss framework (Corporate Income Tax in Zimbabwe), the withholding and deemed-dividend rules (Withholding Taxes — Residents and Non-Residents), residence and source (Tax Residence and Source of Income), and administration, assessment and penalties (Provisional Tax, QPDs and PAYE Administration). It then shows how the anti-avoidance machinery overlays all of them.

B.1 The General Anti-Avoidance Rule — Section 98

Section 98 ("Tax avoidance generally") is the residual, catch-all weapon. It applies where any "transaction, operation or scheme" (expressly including one involving the alienation of property) has been entered into or carried out which:

1. has the effect of avoiding or postponing liability for any tax, or of reducing the amount of such liability; and
2. in the Commissioner's opinion, having regard to the circumstances, was either — - (a) entered into or carried out by means or in a manner which would not normally be employed in a transaction of that nature (the "abnormality of means" limb); or - (b) has created rights or obligations which would not normally be created between persons dealing at arm's length in a transaction of that nature (the "non-arm's-length terms" limb); and
3. in the Commissioner's opinion, the avoidance, postponement or reduction was the sole purpose or one of the main purposes of the transaction.

Where all three elements are satisfied, the Commissioner "shall determine the liability for any tax and the amount thereof as if the transaction, operation or scheme had not been entered into or carried out, or in such manner as in the circumstances of the case he considers appropriate for the prevention or diminution of such avoidance, postponement or reduction". This is the reconstruction power: the artifice is set aside and tax is charged on the substance.

Three features of Section 98 deserve emphasis:

• It catches "any tax". Section 98 is not confined to income tax; it reaches the full range of taxes the Act administers.
• The three elements are cumulative — but limbs (a) and (b) are alternatives. There must be an avoidance effect, plus either abnormal means or non-arm's-length rights/obligations, plus the avoidance purpose. The "effect" and "purpose" are distinct: an arrangement can reduce tax (effect) yet survive if tax saving was not a sole or main purpose, or if it was carried out in a normal, arm's-length way.
• The opinion and the onus. The provision repeatedly turns on "the opinion of the Commissioner". Once the Commissioner forms that opinion, the onus shifts to the taxpayer to displace it — and, as the case annotations note, to prove the innocence of purpose under the Eleventh Schedule penalty regime, failing which a penalty of up to 100% is justified (SDC Ltd (2) v ZIMRA 21-HH-338).

B.2 Income splitting — Section 98A

Section 98A (inserted by Act 1 of 2014, w.e.f. 1 January 2014) is a targeted rule for individuals. Under subsection (1), "where an individual attempts to split income with an associate, the Commissioner may adjust the taxable income of the taxpayer and the associate to prevent any reduction in tax payable as a result of the splitting."

Subsection (2) deems an attempt to split income where:

• (a) the taxpayer transfers income, directly or indirectly, to an associate; or
• (b) the taxpayer transfers property to an associate with the result that the associate receives or enjoys the income from that property;

and the sole or main reason for the transfer is to lower the tax payable on the combined incomes of the taxpayer and the associate.

Subsection (3) directs the Commissioner, in deciding whether splitting is occurring, to consider the value (if any) given by the associate for the transfer. The policy is to defeat the diversion of income to a lower-rate (or loss-making) family member or related entity, while leaving genuine, full-value transfers untouched.

B.3 Transactions between associates (transfer pricing) — Section 98B

Section 98B ("Transactions between associates"), substituted by the Finance (No. 2) Act 9 of 2015 with effect from 1 January 2016, is the core transfer-pricing charge.

• Subsection (1) — the arm's-length principle. Where a person engages, directly or indirectly, in any transaction, operation or scheme (a "controlled transaction") with an associated person, the taxable income derived must be consistent with the arm's-length principle — i.e. the conditions of the controlled transaction must not differ from those of an uncontrolled transaction between independent persons in comparable transactions under comparable circumstances.
• Subsection (2) — the adjustment. Any amount of income that would have accrued to either associated person at arm's length, and been taxable in Zimbabwe, is — where the absence of arm's-length pricing avoided, reduced or postponed tax — included in the taxable income of either or both, and taxed accordingly.
• Subsection (2a) — the penalty ladder (inserted by Finance Act 1 of 2019, w.e.f. 1 January 2019). On an adjustment under subsection (2), the taxpayer is liable to:
• (a) 100% of the shortfall where there is evidence the avoidance was actuated by fraud or evasion; or
• (b) in the absence of such evidence —
• (i) 30% of the shortfall where contemporaneous transfer-pricing documentation does not exist, or does not comply with the Thirty-Fifth-Schedule guidelines; or
• (ii) 10% of the shortfall where compliant contemporaneous documentation exists.
• Subsection (3) — the Thirty-Fifth Schedule prescribes how arm's-length consistency and the quantum of tax are determined.
• Subsection (4) — low-tax jurisdictions. Subsection (1) also applies where a Zimbabwe-resident person (whether or not an associated person) transacts with a person resident outside Zimbabwe in a jurisdiction the Commissioner-General considers to provide a taxable benefit in relation to the transaction. This extends transfer-pricing discipline beyond related parties to tax-haven dealings.
• Subsection (5) — documentation. Every person engaging in a subsection (1) or (4) transaction must keep the documentation prescribed in the Thirty-Fifth Schedule to enable the Commissioner-General to verify arm's-length conduct.
• Subsections (6) and (7) (inserted by Finance Act 1 of 2019) — a person must submit a return in the prescribed form disclosing the details of the transaction, and the Commissioner may, under Section 37(10), require such a return.

Section 98C (inserted by Finance Act 2 of 2017, backdated to 1 January 2017) supplements the regime by providing for the reporting of unprofessional conduct of advisers to their controlling professional bodies — a deterrent against advisers who facilitate avoidance.

B.4 Who is an "associated person"? — Sections 2A and 2B

The transfer-pricing and income-splitting rules turn on the meaning of "associate"/"associated person", defined in Section 2A (inserted by Act 1 of 2014, w.e.f. 1 January 2014):

• Subsection (1) — the functional core. Where a person (other than an employee) acts in accordance with the directions, requests, suggestions or wishes of another person — whether or not in a business relationship, and whether or not those wishes are communicated — both persons are associates. This is a deliberately substance-based test: the question is real influence, not legal form.
• Subsection (2) — deemed associates (without limiting subsection (1)):
• (a) a near relative, unless the Commissioner is satisfied neither acts on the other's wishes;
• (b) a partner, on the same proviso;
• (c) a partnership in which the person (alone or with associates) controls 50% or more of the rights to income or capital;
• (d) the trustee of a trust under which the person or an associate benefits or may benefit;
• (e) a company controlled by the person (alone or with associates);
• (f) where the person is a partnership, a partner controlling 50% or more of its income/capital;
• (g) where the person is a trustee, any other beneficiary of the trust;
• (h) where the person is a company, anyone who controls it (alone or with associates), and any other company controlled by such a person.
• Section 2B — when a person controls a company. A person controls a company if, alone or with associates or nominees, the person (a) controls the majority of voting rights (directly or through interposed companies, partnerships or trusts), or (b) has any direct or indirect influence that, if exercised, results in factual control.

This wide, influence-based definition means the transfer-pricing net captures not only formal parent-subsidiary groups but also family arrangements, trust structures and "acting-in-concert" relationships.

B.5 The Thirty-Fifth Schedule — transfer-pricing methodology

The Thirty-Fifth Schedule (made under Section 98B; inserted by the Finance (No. 2) Act 9 of 2015 with effect from the year of assessment beginning 1 January 2016) is Zimbabwe's codification of the OECD-style arm's-length methodology.

Paragraph 1 — interpretation. A "comparable transaction" is one comparable by reference to paragraph 3; an "uncontrolled transaction" is a transaction between independent persons.

Paragraph 2 — the determination of arm's-length consistency for Section 98B is made by the Commissioner-General in accordance with the Schedule.

Paragraph 3 — comparability. An uncontrolled transaction is comparable to a controlled one where there are no material differences affecting the financial indicator, or where a reasonably accurate comparability adjustment can eliminate such differences. The five comparability factors are: (a) the characteristics of the property or services; (b) the functions performed (taking into account assets used and risks assumed — the "functional analysis"); (c) the contractual terms; (d) the economic circumstances; and (e) the business strategies of the associated persons.

Paragraph 4 — the methods. The most appropriate method is selected by reference to the strengths and weaknesses of each method, the nature of the transaction (via functional analysis), the availability of reliable data, and the degree of comparability. The five approved methods are:

• (a) Comparable Uncontrolled Price (CUP) — compares the price charged in the controlled transaction with the price in a comparable uncontrolled transaction;
• (b) Resale Price Method — compares the resale margin a reseller earns on controlled-then-uncontrolled resale with comparable uncontrolled resale margins;
• (c) Cost Plus Method — compares the mark-up on costs in the controlled supply with the mark-up in comparable uncontrolled supplies;
• (d) Transactional Net Margin Method (TNMM) — compares the net profit margin (relative to costs, sales or assets) in the controlled transaction with that in comparable uncontrolled transactions;
• (e) Transactional Profit Split Method — allocates the common profit (or loss) among the associated persons as independent persons would expect, applied to residual profit once routine functions are remunerated under (a)–(d).

A hierarchy/preference operates: where the CUP and another method can be applied with equal reliability, the CUP prevails (paragraph 4(6)); and where a traditional transaction method ((a)–(c)) and another can be applied with equal reliability, the traditional method prevails (paragraph 4(7)). It is not necessary to apply more than one method (paragraph 4(8)). A non-approved method may be used only where none of the approved methods can reasonably be applied and the alternative yields an arm's-length result (paragraph 4(9)–(10)). The Schedule also explains the selection of the "tested party" (paragraph 4(11)–(12)) and provides that where a taxpayer has properly applied an approved method, the Commissioner's examination is based on that method (paragraph 4(13)).

Paragraphs 5–6 — combining transactions and the arm's-length range. Economically linked controlled transactions may be combined for analysis. The arm's-length range is the range of financial-indicator figures produced by applying the most appropriate method to comparable uncontrolled transactions. A controlled transaction within the range is not adjusted; where it falls outside the range, the Commissioner adjusts it to the median — defined as the 50th percentile of the comparable figures (paragraph 6(3)–(4)).

Paragraph 7 — sources of comparables. Comparables may be internal (one party to the controlled transaction is also party to the uncontrolled one) or external. Information not available to the taxpayer cannot be used against the taxpayer, and information not available to the Commissioner cannot be relied on by the taxpayer; in the absence of same-market data, other geographic markets may be accepted on a case-by-case basis.

Paragraph 8 — services between associated enterprises. A service charge is arm's-length only where (a) a service was actually rendered; (b) it provided (or was expected to provide) the recipient economic or commercial value; (c) an independent enterprise would have paid for it or performed it in-house; and (d) the amount matches what independents would have agreed. Crucially, a charge made solely because of the shareholder's ownership interest — pure shareholder/stewardship costs such as the parent's shareholder meetings, share issues, group-consolidation reporting, and fund-raising for acquisitions that do not benefit the recipient — is not arm's-length and is not chargeable to the subsidiary.

Paragraph 9 — intangibles. Arm's-length conditions for licences, sales or transfers of intangible property take account of both the transferor's and transferee's perspectives, the expected benefits, any geographic limitations, the exclusive/non-exclusive character of the rights, and whether the transferee may participate in further development.

Paragraphs 10–12 — corresponding adjustments. Where the Commissioner adjusts one party to a domestic controlled transaction, he must make an appropriate corresponding adjustment to the other Zimbabwean party (paragraph 11) to avoid economic double taxation. For international transactions, where a treaty partner adjusts the conditions of a transaction and thereby taxes income already taxed in Zimbabwe, the Commissioner — on request — examines the adjustment's arm's-length consistency, consulting the foreign competent authority as necessary (paragraph 12), i.e. the Mutual Agreement Procedure path under a Double Taxation Agreement (Double Taxation Agreements and Relief).

B.6 Specific Anti-Avoidance Rules in Section 16 (the SAARs)

Where the GAAR and Section 98B require a purpose enquiry and a comparability analysis, the Section 16 SAARs impose bright-line, mechanical limits on particular related-party deductions. These are taught in full in Prohibited Deductions under section 16; here they are integrated as the front line of the transfer-pricing defence:

• Paragraph (q) — thin capitalisation. Disallows interest incurred by a local branch/subsidiary of a foreign company, or a local company/subsidiary, in servicing debt to the extent the debt causes the person to exceed a debt-to-equity ratio of 3 : 1. "Equity" is defined as issued and paid-up capital, unappropriated profits, reserves, realised reserves and interest-free loans from shareholders. (Substituted by Finance Act 1 of 2018, w.e.f. YA2018; a proviso carves out genuine local-lender debt between non-associated parties and Government-credit-facility debt of a public entity — Finance (No. 2) Act 7 of 2019.) NOC (Pvt) Ltd v ZIMRA 19-HH-765 holds it is improper to split a single payment into deductible and non-deductible segments.
• Paragraph (r) — management and administration fees paid to an associated enterprise (or, for a foreign company, its local branch): disallowed to the extent they exceed 0.75% (pre-commencement of trade / non-production periods) or 1% (post-commencement) of the base A − (B + C), where A = total expenditure qualifying for deduction under Section 15; B = fees/administration/management paid outside Zimbabwe; C = expenditure qualifying under Section 15(2)(f)(i). (Substituted by Finance Act 2 of 2017.) Cases: GFZ Ltd v ZIMRA 19-HH-843 (100% penalty for deliberately invoking the inapplicable Section 15(2)(cc)), TL v ZIMRA 20-HH-413, MR Bank Ltd v ZIMRA 19-HH-779, MBCA Bank (Pvt) Ltd v ZIMRA 21-SC-140.
• Paragraph (s) — off-market foreign-loan interest. Disallows interest on foreign loans in excess of what would have been payable had the exchange rate used to buy the servicing currency been the rate ordinarily offered to other clients of the lender on the transaction date (inserted by Act 13 of 2019, w.e.f. 1 January 2020).
• Paragraph (t) — royalties. Disallows royalty payments (for copyright works, patents, trade marks, designs, secret formulae/processes, etc.), whether claimed by the taxpayer or by an associated enterprise/local branch, to the extent the deduction exceeds the lower of 1.5% of the taxpayer's annual turnover or the comparable value determined under the Thirty-Fifth Schedule (inserted by Finance (No. 2) Act 7 of 2024, w.e.f. 1 January 2025).

These SAARs interact with the withholding regime: under Sections 26(2)/28(2), the excess management fees, royalties or interest disallowed and paid to an associated enterprise can be deemed a dividend and subjected to Non-Resident or Resident Shareholders' Tax (Withholding Taxes — Residents and Non-Residents). A single related-party payment can therefore be hit twice — disallowed as a deduction and taxed as a deemed dividend.

C.1 The arm's-length principle, from first principles

The arm's-length principle is the keystone. It asks a single counterfactual question: would independent parties, each pursuing its own self-interest and free of common control, have agreed to these same conditions in a comparable transaction under comparable circumstances? If yes, the controlled transaction is respected. If no, the controlled price is replaced by the price independents would have used, and the difference is taxed in Zimbabwe.

The principle exists because associated parties do not bargain at arm's length. A parent that owns its Zimbabwean subsidiary is indifferent to which group company books the profit; it cares only about the group's worldwide tax. By overcharging the subsidiary for management services, loans or the use of a brand, the group can strip taxable profit out of high-tax Zimbabwe and land it in a low-tax parent jurisdiction — without any third party noticing, because the money never leaves the family. Section 98B and the Thirty-Fifth Schedule restore the position that would have prevailed between strangers.

C.2 The five-step transfer-pricing analysis

A practitioner (and ZIMRA) works through the Thirty-Fifth Schedule in a disciplined sequence:

1. Identify the controlled transaction and the associated persons (Sections 2A/2B, 98B(1)). Is there a transaction with an associate (or, under 98B(4), a low-tax-jurisdiction counterpart)?
2. Perform a functional analysis (paragraph 3(2)) — map the functions performed, assets used and risks assumed by each party. This determines which party is the simpler "tested party" and which methods fit.
3. Select the most appropriate method (paragraph 4) from the five approved methods, respecting the CUP preference where reliability is equal.
4. Identify comparables and build the arm's-length range (paragraphs 3, 6, 7) — gather internal and external comparables, make comparability adjustments, and compute the range of arm's-length financial indicators.
5. Test and, if necessary, adjust (paragraph 6) — if the controlled result is within the range, no adjustment; if outside, adjust to the median (50th percentile), include the adjustment in taxable income under Section 98B(2), and apply the penalty tier under Section 98B(2a) according to the documentation position.

C.3 Why documentation is the whole game

Section 98B(2a) makes contemporaneous transfer-pricing documentation the single most valuable risk-management tool a group has. The penalty is 10% of the shortfall where compliant documentation exists, but triples to 30% where it does not (and reaches 100% for fraud/evasion). Documentation that explains the functional analysis, the method chosen, the comparables and the range converts a potentially catastrophic adjustment into a manageable one — and may avoid an adjustment altogether, because paragraph 4(13) requires the Commissioner to examine the taxpayer's position using the taxpayer's own method where it was properly applied. Section 98B(5)/(6) make documentation and return disclosure mandatory, not optional.

C.4 How the GAAR, Section 98B and the SAARs fit together

These provisions are concentric, not mutually exclusive. Think of them as a funnel:

• The SAARs (Section 16(q)–(t)) are the outermost, automatic filter: they cap or disallow defined related-party deductions by formula, without any purpose test. A thin-cap breach disallows interest whatever the taxpayer's intention.
• Section 98B is the transfer-pricing core: for the priced conditions of a controlled transaction (or low-tax-jurisdiction transaction), it imposes the arm's-length standard and the comparability machinery.
• Section 98A handles the specific case of an individual splitting income with an associate.
• The GAAR (Section 98) is the residual backstop: it catches schemes that escape the specific rules — artificial structures, circular flows, abnormal arrangements — provided the avoidance effect, abnormality/non-arm's-length terms, and sole-or-main purpose are all present.

In practice ZIMRA will often plead the specific rule first (it is mechanical and easier to sustain) and the GAAR in the alternative. A taxpayer who clears the SAAR caps and prices intra-group dealings at arm's length with proper documentation is well protected; one who relies on a contrived structure remains exposed to Section 98 even if the specific rules are technically satisfied.

C.5 Corresponding adjustments and double taxation

A transfer-pricing adjustment increases taxable income on one side of a transaction. Without relief, the same income is taxed twice — once where it was originally booked and again where it is reallocated. The Thirty-Fifth Schedule answers this two ways: for domestic transactions, paragraph 11 requires the Commissioner to make a corresponding downward adjustment to the other Zimbabwean party; for international transactions, paragraph 12 routes relief through the treaty Mutual Agreement Procedure, under which the Commissioner consults the foreign competent authority. A taxpayer facing a foreign adjustment that hits Zimbabwe-taxed income should invoke paragraph 12 promptly.

D.1 Individuals — income splitting in a family company

Scenario. Mr Moyo runs a profitable consultancy as a sole proprietor, expecting USD 60,000 taxable income for YA2025 — taxed at the top marginal 40% band. To reduce the family's tax, he "employs" his adult daughter (who renders no services) at a salary of USD 24,000, intending to deduct it and have her taxed in lower bands.

Analysis. The arrangement is a transfer of income to an associate (a near relative — Section 2A(2)(a)) whose sole or main reason is to lower the combined tax — squarely Section 98A. Because the daughter gives no value (Section 98A(3)), the Commissioner may disallow the salary deduction and assess the full USD 60,000 on Mr Moyo. The "salary" also fails the general deduction test (it is not genuinely expenditure incurred in the production of income — Allowable Deductions and General Formula) and may be attacked under Section 16(1)(a).

Tax effect (USD, YA2025 individual table). On the reconstructed USD 60,000: tax = 60,000 × 40% − 4,020 = 24,000 − 4,020 = USD 19,980, plus 3% AIDS Levy = USD 599.40, total ≈ USD 20,579. The attempted split is simply ignored. Had the daughter genuinely worked and been paid a market salary for real services, the deduction would stand — the rule defeats artifice, not genuine employment.

D.2 SMEs — related-party management fees and the Section 16(r) cap

Scenario. Tendai Foods (Pvt) Ltd, a Zimbabwean company, pays an annual management fee of USD 90,000 to its associated holding company. Its total expenditure qualifying for deduction under Section 15 (factor A) is USD 4,000,000; fees paid outside Zimbabwe (factor B) are USD 90,000; and Section 15(2)(f)(i) expenditure (factor C) is USD 200,000. The company has commenced trade (so the 1% cap applies).

Computation (Section 16(1)(r)).

Line	Item	Amount (USD)
1	A — total Section 15 qualifying expenditure	4,000,000
2	B — fees paid outside Zimbabwe	90,000
3	C — Section 15(2)(f)(i) expenditure	200,000
4	Base A − (B + C) = 4,000,000 − 290,000	3,710,000
5	Cap at 1% of base	37,100
6	Fee claimed	90,000
7	Disallowed (6 − 5)	52,900

So only USD 37,100 of the fee is deductible; USD 52,900 is added back to taxable income (extra tax at 25% = USD 13,225, plus AIDS Levy). Worse, under Section 26(2) the disallowed excess paid to the associated enterprise abroad can be deemed a dividend and subjected to Non-Resident Shareholders' Tax — the same USD 52,900 is taxed a second time. The lesson for SMEs in groups: size related-party fees to the statutory cap and keep evidence of real services (Thirty-Fifth Schedule paragraph 8).

D.3 Large corporates / multinationals — thin capitalisation and a transfer-pricing adjustment

Scenario. GlobalMine Zimbabwe (Pvt) Ltd is the local subsidiary of a foreign mining group. It is funded with equity of USD 10,000,000 (issued and paid-up capital, reserves and interest-free shareholder loans, per the Section 16(q) definition) and an interest-bearing shareholder loan of USD 50,000,000 at 8%, giving annual interest of USD 4,000,000. It also pays the parent a technical-service fee that ZIMRA considers above arm's length.

(i) Thin capitalisation — Section 16(1)(q). The permitted debt is 3 × equity = 3 × 10,000,000 = USD 30,000,000. The excess debt is 50,000,000 − 30,000,000 = USD 20,000,000, i.e. 40% of the loan. Interest referable to the excess is 40% × 4,000,000 = USD 1,600,000, which is disallowed. Only USD 2,400,000 of interest is deductible. (Following NOC 19-HH-765, the disallowance is computed on the proportion of the debt, not by artificially splitting individual payments.) The disallowed interest paid to the foreign shareholder may again be deemed a dividend under Section 26(2).

(ii) Transfer-pricing adjustment — Section 98B + Thirty-Fifth Schedule. Suppose the parent charges USD 5,000,000 for technical services. A functional analysis (paragraph 3) and a TNMM benchmarking study (paragraph 4(5)(d)) produce an arm's-length range whose median (50th percentile) supports only USD 3,200,000. Because the charge falls outside the range, the Commissioner adjusts it to the median (paragraph 6(3)): USD 5,000,000 − 3,200,000 = USD 1,800,000 is added to taxable income under Section 98B(2). If the group held compliant contemporaneous documentation, the penalty under Section 98B(2a)(b)(ii) is 10% × (1,800,000 × 25% = 450,000 tax) = USD 45,000; with no compliant documentation the penalty trebles to 30% = USD 135,000; and on evidence of fraud/evasion it is 100% = USD 450,000. The arithmetic alone makes the case for investing in documentation.

(iii) Compliance posture. A multinational must: file the Section 98B(6) disclosure return of controlled transactions; maintain a transfer-pricing policy and documentation file (Thirty-Fifth Schedule); price intra-group goods, services, loans, royalties and cost-sharing at arm's length; respect the SAAR caps (q)/(r)/(s)/(t); and, where a foreign adjustment bites, invoke the corresponding-adjustment / MAP mechanism (paragraph 12; Double Taxation Agreements and Relief).

The Act annotates an extensive anti-avoidance case line. The cases are cited here for the principles they establish; where the source Act does not reproduce the full facts, that is flagged.

• SDC Ltd v ZIMRA 18-HH-648 and SDC Ltd (2) v ZIMRA 21-HH-338. Annotated against Section 98 (and Section 98A), this litigation establishes the onus point: once the Commissioner forms the opinion that an arrangement's sole or main purpose was avoidance, the taxpayer must prove the innocence of that purpose (under the Eleventh Schedule), failing which a 100% penalty is justified. It illustrates how decisively the burden shifts under the GAAR.
• Delta Beverages (Pvt) Ltd v ZIMRA 22-SC-003. Annotated against Section 98, this Supreme Court decision is part of the gross-income/anti-avoidance jurisprudence (also relied on in Gross Income Definition and Case Law); it reflects the courts' willingness to look to substance in characterising receipts and arrangements. **
• H. B. (Midlands) (Pvt) Ltd v ZIMRA 20-HH-332. Annotated against Section 98(b), concerning rentals collected that were not market-related — a classic non-arm's-length-terms scenario where related-party rents were set below market, engaging the GAAR's paragraph (b) limb. **
• Zacks E v COT 93-HB-104 and D v COT 99-ICT-1669. Annotated against Section 98, illustrating the limits of the GAAR: in Zacks, husband-and-wife directors/shareholders who rendered no services and drew no salary could not be said to be escaping an anticipated salary liability — there was no avoidance to reconstruct. The principle is that Section 98 cannot manufacture a liability that never arose.
• G Bank Ltd v ZIMRA 15-HH-207 and CRS (Pvt) Ltd v ZIMRA 17-HH-728. Annotated on whether ZIMRA can tax notional/non-existent income through deeming provisions (e.g. notional interest on Nostro accounts). They mark the boundary of anti-avoidance: deeming and reconstruction operate on real arrangements, not to tax income that does not exist. **
• C F (Pvt) Ltd v ZIMRA 18-HH-099. Annotated against Section 98A/98B under the heading "transfer pricing", part of the developing Zimbabwean transfer-pricing jurisprudence. **
• The Section 16 SAAR cases — NOC (Pvt) Ltd v ZIMRA 19-HH-765 (no splitting of a payment into deductible/non-deductible segments — thin cap), GFZ Ltd v ZIMRA 19-HH-843 (100% penalty for deliberately invoking an inapplicable provision — management fees), TL v ZIMRA 20-HH-413, MR Bank Ltd v ZIMRA 19-HH-779, and MBCA Bank (Pvt) Ltd v ZIMRA 21-SC-140 — develop the mechanical application of the related-party caps (see Prohibited Deductions under section 16).

Where Zimbabwe has no on-point decision (for example on a specific Thirty-Fifth-Schedule method selection), the area is governed by the statute and Schedule themselves, supplemented — as non-binding persuasive guidance only — by OECD transfer-pricing principles and South African authority. No case has been invented to fill a gap.

1. Confusing planning, avoidance and evasion. Genuine mitigation is lawful and effective; avoidance is lawful but reconstructable; evasion is criminal. Mislabelling a contrived scheme as "planning" does not save it, and treating an honest planning step as "avoidance" over-reaches.
2. Assuming the GAAR needs proof of avoidance as the only purpose. Section 98 bites where avoidance was the sole purpose or one of the main purposes — a strong commercial rationale does not immunise an arrangement if tax saving was also a main purpose and the means were abnormal or non-arm's-length.
3. Ignoring the wide "associate" definition. Section 2A is influence-based and reaches family members, partners, trusts and "acting-in-concert" parties — not just formal subsidiaries. Practitioners who limit transfer-pricing thinking to legal parent-subsidiary groups miss Section 2A(1) relationships.
4. Forgetting Section 98B(4) — low-tax-jurisdiction dealings. Transfer-pricing discipline applies to transactions with persons in jurisdictions the Commissioner considers to confer a taxable benefit even if the counterpart is not an associate.
5. Neglecting contemporaneous documentation. The penalty leaps from 10% to 30% (and 100% for fraud) where compliant documentation is absent. Documentation is the cheapest insurance in the system.
6. Mis-selecting the method or ignoring the CUP preference. Reaching for a profit-based method when a reliable CUP exists invites adjustment; the Schedule prefers the CUP where reliability is equal (paragraph 4(6)).
7. Adjusting to the wrong point in the range. Where the controlled result is within the arm's-length range, no adjustment is permitted; where outside, the adjustment is to the median (50th percentile), not to the nearest edge.
8. Double-counting the SAARs and Section 98B — or missing the deemed dividend. A related-party payment can be capped by a SAAR, the excess deemed a dividend under Sections 26(2)/28(2), and the priced conditions tested under Section 98B — practitioners must trace all consequences, not stop at the first.
9. Overlooking corresponding adjustments. After a domestic adjustment, the other Zimbabwean party is entitled to a corresponding downward adjustment (paragraph 11); after a foreign adjustment, relief runs through MAP (paragraph 12). Failing to claim these leaves economic double taxation in place.
10. Treating shareholder/stewardship costs as chargeable services. Costs a parent incurs for its own ownership interest (group reporting, parent shareholder meetings, acquisition fund-raising) are not arm's-length charges to the subsidiary (paragraph 8(2)).

Work through the questions one at a time. Choose an answer and it is graded immediately, with an explanation and the provision it comes from. Your progress is saved, so you can stop and resume.

• Zimbabwe deploys a layered anti-avoidance code: the GAAR (Section 98), income splitting (Section 98A), transfer pricing (Section 98B + Thirty-Fifth Schedule), and the Section 16 SAARs — all resting on the arm's-length principle and substance over form.
• The GAAR (Section 98) requires three cumulative elements — avoidance effect, abnormal means or non-arm's-length terms, and sole/main avoidance purpose — and empowers the Commissioner to reconstruct the transaction; once his opinion is formed, the onus shifts to the taxpayer (SDC Ltd (2) 21-HH-338).
• Section 98A defeats income splitting by an individual with an associate where the sole/main reason is to lower combined tax, with the Commissioner weighing the value given by the associate.
• Section 98B (FA(No.2) 9/2015, w.e.f. YA2016) requires controlled transactions with associates (and, under Section 98B(4), with low-tax-jurisdiction counterparts) to meet the arm's-length principle; adjustments are made to the median of the range, with tiered penalties of 10% / 30% / 100% keyed to documentation and fraud.
• "Associate" (Section 2A) is influence-based and wide — anyone acting on another's directions/wishes, plus deemed relatives, partners, controlled partnerships, trusts and controlled companies; "control" is defined in Section 2B (majority voting rights or factual control).
• The Thirty-Fifth Schedule prescribes five comparability factors, five approved methods (CUP preferred; Resale Price; Cost Plus; TNMM; Profit Split), the arm's-length range / median (50th percentile), special rules for intra-group services (no charge for shareholder/stewardship costs) and intangibles, and corresponding adjustments (domestic — para 11; international/MAP — para 12).
• Contemporaneous documentation is decisive: it cuts the penalty to 10%, can pre-empt adjustment (para 4(13)), and is mandatory (Section 98B(5)) alongside return disclosure (Section 98B(6)/(7)).
• The Section 16 SAARs are the automatic front line: thin cap 3:1 (q), management-fee cap 0.75%/1% (r), off-market foreign-loan interest (s), and the royalty cap — lower of 1.5% turnover or Thirty-Fifth-Schedule comparable value (t) — and excess related-party amounts can be deemed dividends under Sections 26(2)/28(2) (Prohibited Deductions under section 16, Withholding Taxes — Residents and Non-Residents).
• Builds on Allowable Deductions and General Formula, Prohibited Deductions under section 16, Corporate Income Tax in Zimbabwe, Withholding Taxes — Residents and Non-Residents, Tax Residence and Source of Income, Provisional Tax, QPDs and PAYE Administration; links to Double Taxation Agreements and Relief (MAP) and Taxation of Mining Operations in Zimbabwe (multinational extractives).

Table 1 — The anti-avoidance layers compared

Provision	Target	Test	Consequence
Section 98 GAAR	Any scheme to avoid/postpone/reduce any tax	Effect + (abnormal means or non-arm's-length terms) + sole/main purpose	Reconstruct "as if not entered into"; up to 100% penalty (11th Sch)
Section 98A income splitting	Individual diverting income/property to an associate	Transfer + sole/main reason to lower combined tax; value given by associate	Adjust taxable income of both parties
Section 98B transfer pricing	Controlled transactions with associates; low-tax-jurisdiction deals (98B(4))	Arm's-length principle (35th Sch comparability & methods)	Include arm's-length amount; adjust to median; 10/30/100% penalty
Section 16(q) thin cap	Interest on related/inbound debt	Debt > 3:1 debt:equity	Disallow interest on excess debt
Section 16(r) management fees	Fees to associated enterprise	Excess over 0.75%/1% of A−(B+C)	Disallow excess (may be deemed dividend)
Section 16(s) foreign-loan interest	Off-market FX servicing cost	Excess over ordinary client rate	Disallow excess
Section 16(t) royalties	Royalties (incl. to associates)	Excess over lower of 1.5% turnover / 35th-Sch value	Disallow excess (YA2025)

Table 2 — The five approved transfer-pricing methods (35th Schedule, para 4(5))

Method	What it compares	Typical use
CUP (Comparable Uncontrolled Price)	The price in controlled vs comparable uncontrolled transaction	Commodities, loans, royalties with good comparables; preferred where equally reliable
Resale Price	The resale gross margin earned by a reseller	Distributors reselling without much value-add
Cost Plus	The mark-up on costs of the supplier	Manufacturers/service providers selling to associates
TNMM	The net profit margin (to costs/sales/assets)	Where gross-margin data are unreliable; common default
Profit Split	Allocation of combined (residual) profit	Highly integrated operations; unique intangibles on both sides

Table 3 — Penalty ladder on a Section 98B adjustment (Section 98B(2a))

Situation	Penalty (% of shortfall)
Fraud or evasion shown	100%
No, or non-compliant, contemporaneous TP documentation	30%
Compliant contemporaneous TP documentation exists	10%

Diagram 1 — Which anti-avoidance rule applies?

flowchart TD
 A[Related-party or scheme arrangement] --> B{Is it a defined Section 16 related-party deduction?}
 B -->|Yes: interest/fees/royalty| C[Apply SAAR cap Section 16 q/r/s/t]
 B -->|No| D{Individual diverting income/property to an associate?}
 D -->|Yes| E[Section 98A income splitting]
 D -->|No| F{Controlled transaction with an associate or low-tax jurisdiction?}
 F -->|Yes| G[Section 98B + 35th Schedule arm's length]
 F -->|No| H{Artificial scheme with sole/main tax purpose?}
 H -->|Yes| I[Section 98 GAAR reconstruct]
 H -->|No| J[Respected as genuine planning]
 C --> K{Excess paid to associate?}
 K -->|Yes| L[Consider deemed dividend Sections 26 2 / 28 2]

Diagram 2 — The Section 98B transfer-pricing analysis

flowchart TD
 A[Identify controlled transaction and associate] --> B[Functional analysis: functions, assets, risks]
 B --> C[Select most appropriate method - CUP preferred]
 C --> D[Build arm's length range from comparables]
 D --> E{Controlled result within the range?}
 E -->|Yes| F[No adjustment]
 E -->|No| G[Adjust to median 50th percentile]
 G --> H[Include in taxable income Section 98B 2]
 H --> I{Documentation status?}
 I -->|Compliant| J[10% penalty]
 I -->|None/non-compliant| K[30% penalty]
 I -->|Fraud/evasion| L[100% penalty]

Statutes & sections (Income Tax Act [Chapter 23:06], as updated 27 May 2025)

• Section 2A — when persons are deemed associates (acting on directions/wishes; near relatives; partners; controlled partnerships/companies; trust beneficiaries) (inserted Act 1/2014, w.e.f. 1 Jan 2014).
• Section 2B — when a person is deemed to control a company (majority voting rights or factual control).
• Section 16(1)(q) — thin capitalisation: interest disallowed on debt exceeding a 3:1 debt:equity ratio; "equity" defined; local-lender/public-entity provisos (sub FA 1/2018; proviso FA(No.2)7/2019).
• Section 16(1)(r) — management/administration fees to an associated enterprise capped at 0.75%/1% of A − (B + C) (sub FA 2/2017).
• Section 16(1)(s) — off-market foreign-loan interest disallowed (Act 13/2019, w.e.f. 1 Jan 2020).
• Section 16(1)(t) — royalties capped at the lower of 1.5% turnover / Thirty-Fifth-Schedule comparable value (FA(No.2)7/2024, w.e.f. 1 Jan 2025).
• Sections 26(2) / 28(2) — excess related-party fees/royalties/interest deemed a dividend (NRST/RST) (see Withholding Taxes — Residents and Non-Residents).
• Section 98 — general anti-avoidance rule: effect + abnormal means / non-arm's-length terms + sole/main purpose; reconstruction power.
• Section 98A — income splitting with an associate (inserted Act 1/2014).
• Section 98B — transactions between associates / transfer pricing: arm's-length principle (1); adjustment (2); penalty ladder 100%/30%/10% (2a, FA 1/2019); 35th Schedule prescription (3); low-tax-jurisdiction extension (4); documentation (5); disclosure return (6)/(7)) (sub FA(No.2)9/2015, w.e.f. 1 Jan 2016).
• Section 98C — reporting of advisers' unprofessional conduct (FA 2/2017).
• Thirty-Fifth Schedule (Section 98B) — transfer-pricing methodology: comparability factors (para 3); the five approved methods and selection/preference rules (para 4); combination and arm's-length range/median (paras 5–6); sources of comparables (para 7); intra-group services and shareholder-cost exclusion (para 8); intangibles (para 9); corresponding adjustments domestic (para 11) and international/MAP (para 12) (inserted FA(No.2)9/2015, w.e.f. YA2016).
• Eleventh Schedule — penalty/onus framework engaged on a successful Section 98 opinion (innocence-of-purpose burden).

Related legislation

• Finance Act [Chapter 23:04] — company/trust rate 25% (Section 14(2)(c)); individual sliding scale (YA2025 USD); 3% AIDS Levy (worked examples).
• Double Taxation Agreements (Section 25) — relief and the Mutual Agreement Procedure for international corresponding adjustments (Double Taxation Agreements and Relief).

Case law (annotated in the source Act; cited for principle)

• SDC Ltd v ZIMRA 18-HH-648; SDC Ltd (2) v ZIMRA 21-HH-338 — onus shifts on the Commissioner's Section 98 opinion; 100% penalty where innocence of purpose not proved.
• Delta Beverages (Pvt) Ltd v ZIMRA 22-SC-003 — substance-based characterisation (Section 98 context).
• H. B. (Midlands) (Pvt) Ltd v ZIMRA 20-HH-332 — non-market-related rentals (Section 98(b) limb).
• Zacks E v COT 93-HB-104; D v COT 99-ICT-1669 — Section 98 cannot manufacture a liability that never arose.
• G Bank Ltd v ZIMRA 15-HH-207; CRS (Pvt) Ltd v ZIMRA 17-HH-728 — limits on taxing notional/non-existent income through deeming provisions.
• C F (Pvt) Ltd v ZIMRA 18-HH-099 — transfer-pricing (Sections 98A/98B).
• NOC (Pvt) Ltd v ZIMRA 19-HH-765 (thin cap — no splitting of a payment); GFZ Ltd v ZIMRA 19-HH-843, TL v ZIMRA 20-HH-413, MR Bank Ltd v ZIMRA 19-HH-779, MBCA Bank (Pvt) Ltd v ZIMRA 21-SC-140 (management-fee cap; see Prohibited Deductions under section 16).

ZIMRA guidance

• Transfer-pricing return/disclosure forms and documentation expectations under Section 98B(5)/(6) and the Thirty-Fifth Schedule (confirm current ZIMRA transfer-pricing practice note and return format for the relevant year).