Factors for effective transfer pricing taxation in developing countries: the case of Tanzania

Taxation is central to the current economic development agenda. It provides a stable flow of revenue to finance development priorities, such as strengthening physical infrastructure, and is interwoven with numerous other policy areas, from good governance and formalizing the economy, to spurring growth. The aim of this report is to highlight the factors for effective TP taxation and practice of MNE (cross-border) taxation in general and in particular the transfer pricing methods which are used to derive an arm's length price. Findings revealed that there is a significant relationship between the human resources factor, information system factor and to some extent the environmental factor and administration factor with the effectiveness of transfer pricing. Adoption of TP legislation is required and ensuring that it is adequately structured. Investing in technical training for a significant number of local tax officials, facilitation of employment of experienced TP officials from more-experienced tax administrations and Computerization of tax offices will enhance the understanding and thereafter the handling of transfer pricing transactions.