Intangibles and intra-group services are the hardest transfer pricing cases in Zimbabwe, and they are hard for the same reason: what is being paid for cannot be seen. A tonne of ore leaves the country and someone can inspect it. A brand licence and a management fee leave no such trace. Section 98B does not create a separate regime for them — the arm's length principle applies unchanged — but the Thirty-Fifth Schedule adds two paragraphs that exist only because the ordinary comparability analysis is not enough here.

Paragraph 8 imposes a benefit test on any service charge between associated persons. Four conditions must all hold: the service was actually rendered; it provided, or was expected to provide, the recipient with economic or commercial value to enhance its commercial position; an independent enterprise in comparable circumstances would have been willing to pay for it or would have performed it in-house; and the amount corresponds to what independents would have agreed. Paragraph 8(2) then names a category that can never be arm's length: charges made solely because of the shareholder's ownership interest — parent-company shareholder meetings, share issues, supervisory board costs, group consolidation and reporting, and fundraising for acquisitions that do not benefit the payer. These are shareholder activities, and no price makes them deductible.

Paragraph 9 governs intangible property. It requires the arm's length condition to be determined from both perspectives — what a comparable independent transferor would accept, and the value and usefulness of the property to the transferee in its business — and it lists four comparability factors specific to intangibles: expected benefits, geographic limitations, exclusivity, and whether the transferee may participate in further development.

Zimbabwe then does something the OECD framework does not: it caps the deduction outright. Section 16(1)(r) limits fees, administration and management charges paid in favour of an associated enterprise to 1% of a statutory formula (0,75% before trade commences). Section 16(1)(t), inserted with effect from 1 January 2025, caps royalty deductions at 1½% of annual turnover or the comparable value determined under the Thirty-Fifth Schedule, whichever is lower. So a charge can survive the benefit test, be priced at arm's length, and still be disallowed in part. The two-stage test — arm's length first, statutory cap second — is the single most commonly missed feature of this area.

Get it wrong and Section 98B(2a) supplies the price: 100% of the shortfall where fraud or evasion is shown, 30% where contemporaneous documentation is absent or non-compliant, 10% where it exists and complies. Documentation is not paperwork here; it is a twenty-point swing in penalty.

Lessons 1 to 3 of this course built the machinery: who is an associated person and how comparability is tested (Lesson 1), which of the five approved methods applies (Lesson 2), and what documentation must exist and what it is worth in penalty terms (Lesson 3). That machinery assumes something can be compared. For a distributor buying finished goods from its parent, comparables exist — other distributors buy similar goods on similar terms, and the Resale Price Method has something to work with.

Now take two invoices that arrive at a Harare subsidiary each year. One is a royalty, 3% of turnover, for the use of the group's brand and technical know-how. The other is a management fee, an allocated share of head-office cost, for "strategic oversight, group finance and IT support". Neither has an observable market price. The brand is unique by definition — that is what a brand is. The management services were rendered inside a group that keeps no timesheets for them.

This is where transfer pricing stops being an arithmetic exercise and becomes an evidential one. The Schedule's response is to shift the question. For services, paragraph 8 asks first whether there is anything to price at all — the benefit test — and only then what the price should be. For intangibles, paragraph 9 refuses to let the analysis rest on the transferor's asking price alone, and forces the transferee's business use into the comparability.

Then Zimbabwe adds a distinctively domestic layer. Most transfer pricing systems stop at arm's length. Ours does not: Section 16 disallows part of the deduction by formula, whatever the arm's length analysis concludes. That is a deliberate policy choice about base erosion through related-party charges, and it means a Zimbabwean adviser must run two tests in sequence and report the lower figure.

The controlling provision

Section 98B(1) requires that where a person engages, directly or indirectly, in a controlled transaction with an associated person, the taxable income derived shall be consistent with the arm's length principle — the conditions that would have applied between independent persons in comparable transactions carried out under comparable circumstances. Nothing in that wording carves out services or intangibles. Section 98B(3) then routes the determination to the Thirty-Fifth Schedule.

Section 98B(4) extends the reach: subsection (1) also applies where a Zimbabwean resident transacts with a person resident outside Zimbabwe in a jurisdiction the Commissioner-General considers to provide a taxable benefit in relation to that transaction — whether or not the parties are associated. A royalty routed through a low-tax holding company is squarely within this.

Paragraph 8 — services between associated enterprises

A service charge is consistent with the arm's length principle only where all four of these hold (para 8(1)):

• it is charged for a service that is actually rendered;
• the service provides, or when rendered was expected to provide, the recipient with economic or commercial value to enhance its commercial position;
• it is charged for a service that an independent enterprise in comparable circumstances would have been willing to pay for if performed for it by an independent enterprise, or would have performed in-house for itself; and
• its amount corresponds to that which would have been agreed between independent enterprises for comparable services in comparable circumstances.

Paragraph 8(2) then excludes, absolutely, charges made by an associated person solely because of the shareholder's ownership interest in one or more group members. The Schedule names three: costs or activities relating to the juridical structure of the parent (shareholder meetings, share issues, supervisory board costs); costs relating to the parent's reporting requirements, including consolidation; and costs of raising funds for acquiring participations, unless those participations are acquired by the payer and benefit it.

Paragraphs 8(3) to 8(5) deal with allocation. Where specific services can be identified, the test is applied service by service. Where services are rendered jointly and cannot be identified individually, the total charge is allocated among the persons that benefit, on criteria that take account of the nature of the services and the benefits expected, relate exclusively to uncontrolled transactions, and are capable of being measured in a reasonably reliable manner.

Paragraph 9 — intangible property

For licences, sales or other transfers of intangible property between associated persons, arm's length conditions must take into account both the perspective of the transferor and that of the transferee — including the price at which a comparable independent enterprise would be willing to transfer the property, and the value and usefulness of the intangible to the transferee in its business. Four special comparability factors are listed: the expected benefits; any geographic limitations; the exclusive or non-exclusive character of the rights; and whether the transferee may participate in further development by the transferor.

The two deduction caps

Section 16(1)(r) disallows expenditure on fees, administration and management incurred in favour of a company of which the taxpayer is an associated enterprise (or, for a foreign company, the local branch) to the extent it exceeds:

• 0,75% of the formula amount, where incurred before trade commences or during a period of non-production; or
• 1% of the formula amount, where incurred after commencement.

The formula is A − (B + C), where A is total expenditure qualifying for deduction under Section 15, B is expenditure on fees or administration and management paid outside Zimbabwe, and C is expenditure qualifying under section 15(2)(f)(i).

Section 16(1)(t) — inserted by section 12 of the Finance (No. 2) Act 7 of 2024 with effect from 1 January 2025 — disallows royalty payments for the use of literary, dramatic, musical, artistic, scientific or other copyright work, or of a patented article, trade mark, design or model, plan, secret formula or process, to the extent the deduction claimed exceeds 1½% of annual turnover of the taxpayer, or the comparable value determined in terms of the Thirty-Fifth Schedule, whichever is lower. The cap applies whether the deduction is claimed by the taxpayer or in favour of an associated enterprise.

Note the drafting of (t). It does not simply cap at 1½%. It takes the lower of the 1½% ceiling and the Thirty-Fifth Schedule comparable value — so the transfer pricing analysis is written into the deduction rule itself. A royalty priced at 1% of turnover but shown by comparables to be worth 0,4% is deductible at 0,4%.

The withholding overlay

Payment of these amounts to a non-resident triggers withholding independently of deductibility. Section 30 charges non-residents' tax on fees under the Seventeenth Schedule; Section 32 charges non-residents' tax on royalties under the Nineteenth Schedule. Both are levied at 15% under the Finance Act. A disallowed deduction does not refund the withholding.

Penalties and objection

Section 98B(2a) fixes the consequence of an adjustment: 100% of the shortfall where there is evidence the avoidance was actuated by fraud or evasion; otherwise 30% where contemporaneous documentation does not exist or does not comply with the Thirty-Fifth Schedule guidelines, and 10% where it exists and complies. An adjustment under section 98B(2)(a) is an objectionable decision, and Section 65 carries the appeal to the Fiscal Appeal Court.

Was the service actually rendered?

The first limb of paragraph 8(1) is evidential, not economic. A charge for a service that was never performed is not a mispriced service — it is not a service. In practice this limb fails on documentation: an intra-group services agreement exists, an invoice exists, a payment exists, and nothing exists between them. No correspondence, no deliverables, no record of who did what for whom. The Commissioner is entitled to conclude that the charge is for nothing.

What answers this limb is contemporaneous and unglamorous: emails and reports evidencing the work, time records or headcount allocations, minutes recording the request for assistance, and the deliverable itself. The test is whether an independent auditor could satisfy themselves the work happened.

Did it confer economic or commercial value?

The second limb asks whether the service provides, or when rendered was expected to provide, the recipient with economic or commercial value to enhance its commercial position. Two things follow. First, the test is applied from the recipient's standpoint — value to the group is irrelevant. Second, the phrase "when rendered was expected to provide" makes it an ex ante test. A service reasonably expected to help does not fail merely because it did not work.

Would an independent have paid for it, or done it in-house?

The third limb is the classic willing payer question, with an important alternative: or would have performed in-house for itself. This closes a gap. A subsidiary that would never have bought group-level treasury advice on the open market might still have employed someone to do it. If so, the service has value and a charge is defensible — measured against what doing it in-house would have cost.

Shareholder activities — the absolute exclusion

Paragraph 8(2) is the provision most often missed, because it operates before price. A charge made solely because of the shareholder's ownership interest is not arm's length at any amount. The Schedule's three named categories share a common feature: the activity exists to serve the parent as shareholder, not the subsidiary as a business.

• Juridical structure of the parent — shareholder meetings, issuing shares in the parent, supervisory board costs. The subsidiary derives nothing from the parent holding an AGM.
• Reporting requirements of the parent, including consolidation of reports. Consolidating group accounts is a parent obligation. Note the boundary: preparing the subsidiary's own statutory accounts is a service to the subsidiary; folding them into a group consolidation is not.
• Raising funds for acquiring participations, unless the participations are acquired by the payer and benefit it. The exception matters — where the Zimbabwean company is the acquirer, the fundraising cost may be chargeable to it.

The practical consequence. A single management fee usually bundles genuine services with shareholder activities. Because paragraph 8(3) requires the test to be applied to each specific service where they can be identified, a bundled fee that cannot be broken down invites a total disallowance rather than a partial one. The remedy is at invoice design stage: itemise, and keep the shareholder element out of the charge entirely.

Allocation keys where services cannot be identified individually

Paragraph 8(4) permits allocation where services are rendered jointly and specific attribution is impossible. Paragraph 8(5) sets three conditions for a reasonable key. It must take account of the nature of the services and the benefits expected; it must relate exclusively to uncontrolled rather than controlled transactions; and it must be capable of measurement in a reasonably reliable manner.

The second condition disqualifies many keys used in practice. An allocation driven by intra-group turnover, or by a share of group-internal cost, is built on controlled transactions and fails on its face. Keys built on third-party turnover, headcount, external sales volume or floor area survive it.

Intangibles: two perspectives, four factors

Paragraph 9(1) makes the analysis bilateral. The transferor's perspective supplies the floor — what a comparable independent enterprise would be willing to transfer the property for. The transferee's perspective supplies the ceiling — the value and usefulness of the intangible to the transferee in its business. An arm's length royalty lies between the two, and a royalty that leaves the licensee with no profit after paying it has almost certainly ignored the second.

Paragraph 9(2) then requires four intangible-specific comparability factors:

• Expected benefits from the property — the commercial return the licensee anticipates;
• Geographic limitations on the exercise of the rights — a Zimbabwe-only licence is not comparable to a regional one;
• Exclusive or non-exclusive character — exclusivity commands a premium;
• Whether the transferee has the right to participate in further developments of the intangible by the transferor.

Because uncontrolled comparables for a unique brand rarely exist, the CUP method usually cannot be applied with reliability, and the analysis moves to the Transactional Profit Split or a TNMM on the licensee — with the tested party selected consistently with the functional analysis, as paragraph 4(11) to (12) requires.

The caps, and the order of operations

Both caps are deduction rules, not pricing rules. They apply to the amount claimed after the arm's length analysis has already been done. The sequence is:

1. Benefit test (services) or the paragraph 9 analysis (intangibles). Fail here and the whole charge goes — the caps never engage.
2. Price the surviving charge under the most appropriate method.
3. Apply Section 16(1)(r) to management and administration fees, or 16(1)(t) to royalties. Deduct the lower figure.
4. Withhold 15% under the Seventeenth or Nineteenth Schedule on the gross amount paid to the non-resident — the cap does not reduce it.

Choosing the tested party, and why it is usually the licensee

Once the benefit test is passed and a method must be applied, paragraph 4(11) requires the selection of a tested party — the party whose financial indicator (mark-up on costs, gross margin or net profit indicator) is measured. Paragraph 4(12) constrains the choice: it must be consistent with the functional analysis of the transaction.

For intangibles that means the licensee, almost always. The licensor owns a unique asset by definition — there is no population of comparable brand owners whose returns can be observed. The licensee, on the other hand, is usually a routine distributor or manufacturer performing functions that plenty of independent enterprises also perform. It is the less complex party, and the one for which reliable comparables exist. Testing the licensor would mean benchmarking the residual, which is exactly the figure in dispute.

The same logic runs through intra-group services. Where a Zimbabwean subsidiary receives support from a regional head office, the head office is the party performing the service and bearing the cost, so it is the tested party under a Cost Plus or TNMM analysis — its mark-up on cost is measured against what independent service providers earn. Where the Zimbabwean company is the one providing services to affiliates, the position reverses and it becomes the tested party, which changes what documentation ZIMRA will expect to see.

Sources of comparables, and the reciprocity rule in paragraph 7

Paragraph 7(1) recognises two sources: internal uncontrolled transactions, where one party to the controlled transaction is also a party to an uncontrolled one, and external uncontrolled transactions, where neither party is involved. Internal comparables are the stronger evidence and the more commonly overlooked. A group that licenses the same brand to an independent franchisee elsewhere, or a subsidiary that buys comparable services from a third-party consultancy, is sitting on the best comparable available to it.

Paragraphs 7(2) and 7(3) then impose a reciprocity that has real practical bite. The Commissioner may not rely on information about an external comparable to make an adjustment if that information is not available to the taxpayer. And the taxpayer may not rely on comparable information if it is not available to the Commissioner. Neither side may argue from evidence the other cannot see. A benchmarking study built on a subscription database the taxpayer cannot access is not a basis for assessment; equally, a study a taxpayer will not disclose in full cannot support its own position.

Paragraphs 7(4) and 7(5) deal with geography. Where no comparables exist in the same geographic market — which for Zimbabwean intangibles is frequently the case — comparables from other geographic markets may be accepted, judged case by case against the paragraph 3 comparability factors. This matters because most brand-licensing benchmarks available in practice are drawn from larger markets, and the Schedule expressly permits their use rather than treating the absence of local data as fatal.

The arm's length range, and where an adjustment lands

Paragraph 6 turns the analysis from a point into a range. An arm's length range is the set of financial indicator figures — prices, margins or profit shares — produced by applying the most appropriate method to a number of uncontrolled transactions, each relatively equally comparable to the controlled one.

Two consequences follow, and the second is the one taxpayers underestimate:

• Inside the range, no adjustment. Paragraph 6(2) says a controlled transaction shall not be subject to an adjustment under section 98B where the tested financial indicator is within the range. This is a protection, not a concession — a royalty at 2% and a royalty at 4% are equally safe if both sit inside the range.
• Outside the range, the adjustment goes to the median. Paragraph 6(3) provides that where the indicator falls outside, the Commissioner may adjust it, and any such adjustment shall be to the median. Not to the nearest edge of the range — to the middle. Paragraph 6(4) defines the median as the 50th percentile: the lowest figure such that at least half the figures are at or below it, with an averaging rule where exactly half fall at or below.

The asymmetry is the point. A royalty set just outside the range is not trimmed back to the boundary; it is moved to the median. A licensee paying 5% where the range runs 2% to 4% with a median of 3% loses two percentage points of turnover, not one. Pricing at the edge of a range in the hope that being close is close enough carries the whole cost of being wrong.

When both countries tax the same amount: corresponding adjustments

An adjustment in one country creates double taxation unless the other country moves too. The Schedule handles the two cases separately.

Domestic transactions — paragraph 11. Where the Commissioner adjusts a taxpayer's taxable income under section 98B in relation to a domestic transaction, the Commissioner shall make an appropriate adjustment to the taxable income of the other party. The obligation is expressed in mandatory terms, and it is symmetrical: if a management fee between two Zimbabwean group companies is reduced in the payer's hands, the recipient's income falls correspondingly. A taxpayer facing a domestic adjustment should expect and ask for the matching relief rather than treat the assessment as final.

International transactions — paragraph 12. Where a foreign tax administration makes or proposes an adjustment to a transaction between a Zimbabwean resident and an associated person, and that adjustment results in the other country taxing income on which the Zimbabwean resident has already been charged to tax in Zimbabwe, and the other country has a treaty with Zimbabwe reflecting an intention to relieve economic double taxation, the resident may request the Commissioner to examine the consistency of that adjustment with the arm's length principle, consulting the other competent authority as necessary. If the foreign adjustment is consistent with the arm's length principle both in principle and as to amount, the Commissioner shall make a corresponding adjustment to eliminate the economic double taxation.

Three conditions therefore gate the relief, and all three must hold: prior Zimbabwean taxation of the same income, a treaty with the other country, and a request from the taxpayer. Relief is not automatic — the Commissioner acts after a request is made. Where a group's royalty is challenged by a parent-country administration and re-priced upward there, the Zimbabwean licensee's route to relief runs through paragraph 12, and it starts with an application, not a wait.

Neighbouring restrictions that catch the same money

Intra-group charges rarely travel alone, and two adjacent provisions bite on the same commercial arrangement:

• Section 16(1)(q) denies a deduction for debt-servicing expenditure to the extent the debt takes the taxpayer beyond a debt-to-equity ratio of 3 : 1, where equity means issued and paid-up capital, unappropriated profits, reserves, realised reserves and interest-free shareholder loans. A group that funds a Zimbabwean subsidiary with shareholder debt and also charges it management fees is exposed under both (q) and (r) at once.
• Section 16(1)(s) disallows interest on foreign loans to the extent it exceeds 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.

Neither is a transfer pricing rule, but both are aimed at the same behaviour, and an audit that opens on management fees commonly widens to them.

Imported services VAT: the charge that survives a disallowance

A management or technical fee paid to a non-resident is a supply of imported services for VAT purposes — the VAT Act defines these as services supplied by a person who is not resident in Zimbabwe, or who carries on business outside Zimbabwe, to a resident recipient, to the extent the services are utilised or consumed in Zimbabwe. The obligation falls on the recipient, and it does not depend on the charge being deductible for income tax. So a single intra-group invoice can attract three separate outcomes: a partial income tax disallowance under section 16(1)(r), non-residents' tax on fees at 15% on the gross, and VAT on imported services on the same amount. Advising on the deduction alone answers a third of the question.

Worked example 1 — a management fee that fails in part

Facts. Kopje Manufacturing (Private) Limited, a Zimbabwean subsidiary of a regional group, is invoiced US$480 000 for the year for "group management services". The invoice is unitemised. On enquiry the group provides a cost breakdown:

Component of the charge	US$	Paragraph 8 analysis
Group IT platform support and helpdesk	150 000	Rendered; evidenced by ticket logs; Kopje would otherwise have employed IT staff — passes all four limbs
Technical production support (3 engineer visits)	120 000	Rendered; reports produced; an independent would have paid — passes
Group treasury and cash pooling advice	60 000	Rendered; Kopje uses the facility and benefits — passes
Parent board and AGM costs, share registry	90 000	Shareholder activity — para 8(2)(a). Excluded absolutely
Group consolidation and IFRS reporting to parent's regulator	60 000	Shareholder activity — para 8(2)(b). Excluded absolutely
Total invoiced	480 000

Step 1 — benefit test. US$150 000 of the charge is shareholder activity and fails paragraph 8(2) before price is considered. The chargeable base is US$330 000.

Step 2 — pricing. The group applies a 5% mark-up on cost. Comparable independent service providers in the region earn mark-ups of 3% to 8% on similar support services, so the mark-up sits within the arm's length range and is accepted. The arm's length charge is US$330 000.

Step 3 — the section 16(1)(r) cap. Kopje's total expenditure qualifying for deduction under section 15 (A) is US$24 000 000. Expenditure on fees, administration and management paid outside Zimbabwe (B) is the US$480 000 invoiced. Expenditure qualifying under section 15(2)(f)(i) (C) is US$1 520 000.

Formula element	US$
A — total section 15 deductible expenditure	24 000 000
B — fees, administration and management paid outside Zimbabwe	(480 000)
C — section 15(2)(f)(i) expenditure	(1 520 000)
A − (B + C)	22 000 000
Cap at 1% (trade has commenced)	220 000

Result. The arm's length charge is US$330 000, but section 16(1)(r) allows only US$220 000. The disallowance is US$260 000 in total — US$150 000 failing the benefit test and a further US$110 000 struck by the cap. Non-residents' tax on fees at 15% is nevertheless due on the full amount paid.

Read the formula carefully. B subtracts the fees themselves from the base, so the cap is calculated on expenditure excluding the charge being tested. Computing 1% of gross section 15 expenditure overstates the allowance — here by US$4 800.

Worked example 2 — a brand royalty under the new 16(1)(t) cap

Facts. Nyanga Beverages (Private) Limited licenses a group trade mark and secret formula, paying a royalty of 3% of turnover. Turnover for the year ended 31 December 2025 is US$40 000 000, so the royalty is US$1 200 000. A benchmarking study of licence agreements in the beverage sector puts the arm's length range at 2% to 4%, and the licence is exclusive to Zimbabwe with no right to participate in further development.

Step 1 — paragraph 9. Both perspectives are addressed: the study evidences what independent licensors accept, and a profit-level analysis shows Nyanga retains an operating margin of 9% after the royalty, consistent with comparable licensee distributors. Exclusivity and the geographic limitation are reflected in the comparables chosen. The royalty is arm's length at 3%.

Step 2 — the section 16(1)(t) cap. For the year of assessment beginning 1 January 2025 the deduction may not exceed the lower of:

Limb	Computation	US$
1½% of annual turnover	40 000 000 × 1,5%	600 000
Comparable value under the Thirty-Fifth Schedule	40 000 000 × 3%	1 200 000
Lower of the two		600 000

Result. Deduction restricted to US$600 000; US$600 000 disallowed, despite the royalty being demonstrably arm's length. Non-residents' tax on royalties at 15% is withheld on the full US$1 200 000 paid — US$180 000.

Step 3 — the counter-case. Suppose instead the benchmarking study had supported only 1%. The comparable value is then US$400 000, which is lower than the 1½% ceiling of US$600 000, and the deduction is restricted to US$400 000. The cap is not a safe harbour: a taxpayer cannot claim 1½% merely because the statute names that figure.

Worked example 3 — an allocation key that fails

Facts. A group allocates US$900 000 of regional head-office cost across four subsidiaries by reference to intra-group sales made by each. Zimbabwe's share is 22%, or US$198 000.

Analysis. Paragraph 8(5)(b) requires the allocation variable to relate exclusively to uncontrolled transactions. Intra-group sales are controlled transactions by definition, so the key fails on its face — irrespective of whether the resulting figure looks reasonable. Rebuilt on third-party turnover, Zimbabwe's share is 14%, or US$126 000, and the key satisfies paragraph 8(5). The difference of US$72 000 is not a pricing dispute; it is a drafting failure in the allocation policy.

Worked example 4 — outside the range, adjusted to the median

Facts. Chimanimani Foods (Private) Limited licenses a group trade mark and pays a royalty of 5% of turnover. Turnover for the year is US$20 000 000, so the royalty is US$1 000 000. A benchmarking study of eleven comparable licence agreements produces the following royalty rates, all relatively equally comparable after paragraph 3 adjustments:

Comparable	Royalty rate	Comparable	Royalty rate
1	2,0%	7	3,2%
2	2,2%	8	3,5%
3	2,5%	9	3,7%
4	2,8%	10	3,9%
5	3,0%	11	4,0%
6	3,1%	Range 2,0% – 4,0%

Step 1 — is it inside the range? No. At 5% the royalty sits above the highest comparable, so paragraph 6(2)'s protection does not apply and the Commissioner may adjust under paragraph 6(3).

Step 2 — where does the adjustment land? Not at 4%. Paragraph 6(3) requires the adjustment to be to the median, and paragraph 6(4) defines the median as the 50th percentile. With eleven observations the sixth is the median: 3,1%.

Step	Rate	US$
Royalty as paid and claimed	5,0%	1 000 000
Adjusted to the median under para 6(3)	3,1%	620 000
Transfer pricing adjustment	1,9%	380 000
Then the s 16(1)(t) cap: lower of 1½% of turnover (300 000) and the comparable value (620 000)	1,5%	300 000
Finally deductible		300 000

Step 3 — the penalty. The shortfall is the tax on the disallowed amount. If contemporaneous documentation exists and complies with the Thirty-Fifth Schedule, section 98B(2a)(b)(ii) sets the penalty at 10% of that shortfall; without it, 30%. Note what pricing at 5% cost: had the royalty been set anywhere between 2% and 4%, there would have been no transfer pricing adjustment at all, and only the section 16(1)(t) cap would have applied.

Worked example 5 — a domestic adjustment and the matching relief

Facts. Two Zimbabwean companies in the same group: Marondera Services (Private) Limited provides shared finance and payroll support to Marondera Retail (Private) Limited and charges US$400 000 for the year. On audit the Commissioner concludes the arm's length charge is US$250 000 and adjusts Retail's deduction accordingly.

The trap. Left there, the group is taxed twice on US$150 000 — Retail cannot deduct it, and Services has already been taxed on receiving it.

Paragraph 11 answers it. Where the Commissioner adjusts the taxable income of a taxpayer in relation to a domestic transaction, the Commissioner shall make an appropriate adjustment to the taxable income of the other party.

Party	Before	After the adjustment	Movement
Marondera Retail — deduction claimed	400 000	250 000	Taxable income up 150 000
Marondera Services — income returned	400 000	250 000	Taxable income down 150 000
Net group position			Nil, if the corresponding adjustment is made

The net effect is neutral provided the matching adjustment is actually made. Where both companies pay tax at the same rate the group is no worse off; where they do not — one in an assessed loss position, one profitable — the timing and rate differences are real, and the adjustment is worth modelling before conceding the pricing point.

Worked example 6 — a cross-border adjustment and the paragraph 12 request

Facts. Hwange Components (Private) Limited pays its South African parent a technical services fee of US$700 000, deducted in Zimbabwe and returned as income in South Africa. The South African revenue authority audits the parent and concludes the arm's length fee is US$900 000, adjusting the parent's income upward by US$200 000. That US$200 000 has already borne Zimbabwean tax in Hwange's hands, because Hwange only deducted US$700 000.

The route. Paragraph 12 requires three conditions, and here each is examined in turn:

Condition	Met?	Why it matters
An adjustment made or proposed by a tax administration outside Zimbabwe	Yes	The South African assessment is the trigger
Resulting in that country taxing income already charged to tax in Zimbabwe	Yes	The US$200 000 is in both bases
A treaty with Zimbabwe reflecting an intention to relieve economic double taxation	Yes	Without a treaty, paragraph 12 gives nothing

What Hwange must do. Make a request to the Commissioner, with the information necessary for the consistency examination. The Commissioner then examines whether the South African adjustment is consistent with the arm's length principle, consulting the South African competent authority as necessary. If it is consistent in principle and as to amount, the Commissioner shall make a corresponding adjustment — increasing Hwange's deductible fee to US$900 000 and eliminating the double taxation.

Nothing happens automatically. Paragraph 12 operates after a request is made by the person resident in Zimbabwe. A group that absorbs a foreign adjustment without applying here simply pays tax twice. And note the limits: the Commissioner is not obliged to accept an adjustment he considers inconsistent with the arm's length principle, so a foreign assessment the group did not contest abroad is not a guaranteed deduction at home.

Worked example 7 — testing an allocation key properly

Facts. A regional head office incurs US$1 200 000 of genuine, benefit-conferring support cost serving four subsidiaries. Specific services cannot be identified per subsidiary, so paragraph 8(4) permits allocation. Three candidate keys are on the table:

Candidate key	Zimbabwe share	Charge	Paragraph 8(5) assessment
Third-party turnover	14%	168 000	Acceptable — relates exclusively to uncontrolled transactions, measurable, and tracks the benefit
Headcount served	19%	228 000	Acceptable where the services are people-facing (payroll, HR), since it reflects the nature of the services
Intra-group sales	22%	264 000	Fails 8(5)(b) — built on controlled transactions

The reasoning that matters. Paragraph 8(5)(a) requires the key to take account of the nature of the services and the benefits expected. So the choice between turnover and headcount is not free: for payroll and HR support, headcount tracks the benefit and turnover does not; for treasury or credit support, turnover or receivables would. A single key applied to a bundle of unlike services is weaker than several keys applied to identifiable groups of services — and where the services can be grouped that way, paragraph 8(3) prefers testing them separately in any event.

Zimbabwe has no reported judgment yet applying paragraph 8 or paragraph 9 of the Thirty-Fifth Schedule directly — the Schedule took effect only for years of assessment beginning 1 January 2016, and section 16(1)(t) only from 1 January 2025. The decided cases sit alongside the provisions rather than on them, and it is worth being precise about which is which.

On the section 16(1)(r) cap

MBCA Bank (Private) Limited v ZIMRA 21-SC-140 and MR Bank Limited v ZIMRA 19-HH-779 are both annotated to paragraph (r) in the Act. They concern the construction of the cap and its formula rather than the arm's length analysis, and they matter here because they confirm the point that most often surprises advisers: the cap is a separate statutory restriction that operates whatever the commercial merit of the charge.

On splitting a payment

NOC (Private) Limited v ZIMRA 19-HH-765, annotated to section 16(1)(q), holds that it is improper to split the payments of expenditure into segments some deductible and some not deductible. Read that alongside paragraph 8(3), which requires the benefit test to be applied to each specific service where specific services can be identified. The two are reconciled at the level of the charge, not the payment: the Schedule contemplates identifying separate services, so a taxpayer should structure separate charges for separate services rather than invite a court to dissect a single composite payment.

On penalties for misplaced deduction claims

GFZ Limited v ZIMRA 19-HH-843 saw a 100% penalty applied for deliberately invoking inapplicable provisions in a deduction claim, and TL v ZIMRA 20-HH-413 is annotated alongside it. The lesson for intra-group charges is direct: claiming a management fee under a provision that does not carry it is not treated as an arguable position.

On the meaning of "fees" for withholding

The withholding overlay has a substantial body of authority. Sunfresh Enterprises (Private) Limited v ZIMRA 04-HB-078 holds that fees include only income sourced inside Zimbabwe, not commissions paid on them; M Coy (Private) Limited v ZIMRA 16-HH-661, upheld on appeal at 21-SC-098, addresses commissions paid to an outside agent. Standard Chartered Bank Zimbabwe Limited v ZIMRA 18-SC-023, SW (Private) Limited v ZIMRA 19-HH-499, M Safaris (Private) Limited v ZIMRA 20-HH-331, E (Private) Limited v ZIMRA 22-HH-010 and Mota Engenhari Construction SA v ZIMRA 22-SC-115 are all annotated to section 30. Together they establish that the characterisation of a payment as a fee is decided on its substance, and that the withholding question is answered independently of whether the payer gets a deduction.

What this means for advice today. With no direct authority on paragraphs 8 and 9, a Zimbabwean taxpayer's protection is documentary rather than jurisprudential. The 10% versus 30% penalty split in Section 98B(2a)(b) is the practical battleground, and it is decided by what was on file at the time of the transaction.

• Pricing before testing. Running a benchmarking study on a management fee that includes shareholder activities. Paragraph 8(2) removes those from the base first; a beautifully evidenced mark-up on an inadmissible cost is still inadmissible.
• Treating the caps as safe harbours. Section 16(1)(t) allows the lower of 1½% of turnover and the Schedule comparable value. Claiming 1½% without a comparability analysis concedes the 30% documentation penalty if the comparable value turns out to be less.
• Computing the (r) formula on gross expenditure. B removes the offshore fees themselves and C removes section 15(2)(f)(i) expenditure. Both subtractions are easy to skip and both inflate the allowance.
• Allocation keys built on group-internal figures. Paragraph 8(5)(b) requires the variable to relate exclusively to uncontrolled transactions. Intra-group sales, group-internal cost shares and intercompany headcount charges all fail.
• The unitemised invoice. One line reading "management services — US$480 000" makes service-by-service testing impossible under paragraph 8(3) and invites disallowance of the whole.
• Assuming a disallowance reduces the withholding. Non-residents' tax on fees and on royalties is charged on the amount paid at 15%. Deductibility and withholding are separate questions.
• Ignoring the transferee's perspective on a royalty. Paragraph 9(1) is bilateral. A royalty that leaves the licensee loss-making is difficult to defend however well the licensor's asking price is evidenced.
• Documentation written after the assessment. Section 98B(2a)(b) turns on contemporaneous documentation. A file assembled during the audit will not move the penalty from 30% to 10%.
• Overlooking section 98B(4). The arm's length rule reaches transactions with persons in jurisdictions the Commissioner-General considers to confer a taxable benefit whether or not the parties are associated. An unrelated licensor in a low-tax jurisdiction is not outside the net.
• Forgetting the return. Section 98B(6) requires a return disclosing the details of the transaction in the prescribed form. Failure to file is a compliance breach independent of the pricing outcome.

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.

• The benefit test comes first. Paragraph 8(1) sets four cumulative limbs — actually rendered, economic or commercial value to the recipient, an independent would have paid or done it in-house, and an arm's length amount. Failure on any limb removes the charge before pricing.
• Shareholder activities are excluded absolutely. Paragraph 8(2) — parent juridical structure, parent reporting and consolidation, and fundraising for participations that do not benefit the payer. No price makes them chargeable.
• Test service by service where you can. Paragraph 8(3); allocate only where you cannot, and only on keys that relate exclusively to uncontrolled transactions and are reliably measurable (para 8(5)).
• Intangibles are analysed from both sides. Paragraph 9(1) requires the transferor's price and the transferee's business value; paragraph 9(2) adds expected benefits, geographic limits, exclusivity and development rights.
• Two Zimbabwean caps sit on top of arm's length. Section 16(1)(r) restricts management and administration fees to an associated enterprise to 1% of A − (B + C), or 0,75% before trade commences. Section 16(1)(t), from 1 January 2025, restricts royalties to the lower of 1½% of turnover and the Thirty-Fifth Schedule comparable value.
• Withholding is independent. Non-residents' tax on fees (section 30, Seventeenth Schedule) and on royalties (section 32, Nineteenth Schedule) are both charged at 15% on the amount paid, whatever the deduction outcome.
• Inside the range there is no adjustment; outside it, the adjustment goes to the median. Paragraph 6(2) protects any figure within the range. Paragraph 6(3)–(4) moves anything outside it to the 50th percentile, not to the nearest edge — so pricing at the boundary carries the full cost of being wrong.
• Corresponding adjustments exist, but only one is automatic. Paragraph 11 obliges the Commissioner to adjust the other party to a domestic transaction. Paragraph 12 relieves international double taxation only where the income was already taxed here, a treaty applies, and the taxpayer asks.
• One invoice, three charges. A fee to a non-resident can face a partial disallowance under section 16(1)(r), 15% non-residents' tax on fees, and VAT on imported services — all on the same amount.
• Documentation is worth 20 percentage points. Section 98B(2a) — 100% for fraud or evasion, 30% without compliant contemporaneous documentation, 10% with it.

The order of operations

#	Test	Authority	Effect of failure
1	Is it a shareholder activity?	35th Sch para 8(2)	Charge excluded absolutely; price never considered
2	Benefit test — four cumulative limbs	35th Sch para 8(1)	Charge not arm's length; whole amount adjusted
3	Intangibles: both perspectives, four factors	35th Sch para 9	Royalty re-priced to the arm's length figure
4	Price under the most appropriate method	35th Sch paras 4–5	Adjustment under s 98B(2)
5	Deduction cap	s 16(1)(r) or 16(1)(t)	Excess disallowed even if arm's length
6	Withhold on payment to non-resident	s 30 / s 32; 17th and 19th Schedules	15% due on the gross amount regardless

The two caps compared

	Section 16(1)(r) — fees, administration, management	Section 16(1)(t) — royalties
Applies to	Fees, administration and management in favour of an associated enterprise, or the local branch of a foreign company	Royalties for copyright works, patented articles, trade marks, designs, models, plans, secret formulae or processes
Ceiling	1% of A − (B + C); 0,75% before trade commences or during non-production	The lower of 1½% of annual turnover and the Thirty-Fifth Schedule comparable value
Base	A = total s 15 deductible expenditure; B = fees/administration/management paid outside Zimbabwe; C = s 15(2)(f)(i) expenditure	Annual turnover of the taxpayer claiming the deduction
In force	Substituted by Finance (No. 2) Act 2017, backdated to 1 January 2017	Inserted by s 12 of Finance (No. 2) Act 7 of 2024, w.e.f. 1 January 2025
Withholding on payment	15% non-residents' tax on fees (s 30, 17th Schedule)	15% non-residents' tax on royalties (s 32, 19th Schedule)

Penalty exposure after an adjustment

Circumstance	Penalty on the shortfall	Authority
Avoidance actuated by fraud or evasion	100%	s 98B(2a)(a)
No contemporaneous documentation, or it does not comply with the Thirty-Fifth Schedule	30%	s 98B(2a)(b)(i)
Contemporaneous documentation exists and complies	10%	s 98B(2a)(b)(ii)

• Income Tax Act [Chapter 23:06] — Section 98B (transactions between associates: subsections (1) to (7), including the (2a) penalty scale)
• Thirty-Fifth Schedule (Section 98B) — paragraph 3 (comparability), paragraph 4 (methods, selection and the tested party at 4(11)–(12)), paragraph 6 (arm's length range; adjustment to the median at 6(3)–(4)), paragraph 7 (sources of comparables; the reciprocity rule at 7(2)–(3); other geographic markets at 7(4)–(5)), paragraph 8 (services between associated enterprises), paragraph 9 (transactions involving intangible property), paragraph 11 (corresponding adjustments, domestic), paragraph 12 (corresponding adjustments, international)
• Section 16(1)(r) — cap on fees, administration and management in favour of an associated enterprise; substituted by the Finance (No. 2) Act 2017, backdated to 1 January 2017
• Section 16(1)(t) — cap on royalty deductions; inserted by section 12 of the Finance (No. 2) Act 7 of 2024 with effect from 1 January 2025
• Section 15 — expenditure qualifying for deduction, which supplies element A of the (r) formula
• Section 30 and the Seventeenth Schedule — non-residents' tax on fees, 15% under the Finance Act
• Section 32 and the Nineteenth Schedule — non-residents' tax on royalties, 15% under the Finance Act (reduced from 20% by the Finance (No. 3) Act 10 of 2009)
• Section 16(1)(q) and 16(1)(s) — the neighbouring restrictions on related-party debt: the 3 : 1 debt-to-equity limit, and interest on foreign loans priced off a non-standard exchange rate
• Value Added Tax Act [Chapter 23:12] — “imported services”, being services supplied by a non-resident or from outside Zimbabwe to a resident recipient to the extent utilised or consumed in Zimbabwe
• Section 65 — appeal to the Fiscal Appeal Court against a decision under section 98B(2)(a)
• Case law — MBCA Bank (Pvt) Ltd v ZIMRA 21-SC-140; MR Bank Ltd v ZIMRA 19-HH-779; NOC (Pvt) Ltd v ZIMRA 19-HH-765; GFZ Ltd v ZIMRA 19-HH-843; TL v ZIMRA 20-HH-413; Sunfresh Enterprises (Pvt) Ltd v ZIMRA 04-HB-078; M Coy (Pvt) Ltd v ZIMRA 16-HH-661 (upheld 21-SC-098); Standard Chartered Bank Zimbabwe Ltd v ZIMRA 18-SC-023; Mota Engenhari Construction SA v ZIMRA 22-SC-115

Statutory text as at the Income Tax Act updated to 27 May 2025 and the Finance Act as at 27 May 2025. Rates are those fixed by the charging Act and should be confirmed against the current Finance Act before reliance.