Journal of Tax Reform
Manipulation of Transfer Pricing Rules by Multinational Enterprises in Developing Countries: The Challenges and Solutions
Wealth Eukeria 1, 2, Favourate Yelesedzani Mpofu 3
1 University of Namibia, Windhoek, Namibia
2 University of South Africa, Pretoria, South Africa
3 National University of Science and Technology, Bulawayo, Zimbabwe
Abstract
Domestic revenue mobilisation has become a topical issue in developing countries, and their capacity to regulate multinational enterprises (MNE) transactions to minimise Base Erosion and Profit Shifting (BEPS) remains a formidable task. Faced with legislative deficiencies, implementation incapacities, and being at the nascent stages of adopting transfer pricing (TP) regulation, developing countries have remained at the mercy of MNEs’ BEPS practices. The complexity and intricacies of intragroup transactions have an impact on profit allocation, thus affecting the distribution of taxing rights across countries where these MNEs operate. This study explores the regulatory policies toward international transfer pricing in the context of developing nations and the associated challenges. The paper proffers possible solutions to improve TP regulation and implementation. Specifically, the paper centres its attention on Zimbabwe, one of the developing nations that have implemented transfer pricing legislation in recent years. Mitigating the impact of BEPS through efforts, such as regulating and managing TP would avail potential substantial finance to shift developing countries from aid dependence to self-sustenance, yet these efforts face a lot of hurdles. Research that contributes to knowledge development in the area, evaluates the hurdles faced and contributes to policy and implementation improvements becomes vital. This study found that Zimbabwe is faced with challenges such as lack of legislative clarity, lack of comparability data, shortage of resources, lack of capacity and dysfunctional double taxation agreements in dealing with transfer pricing. The study recommends Zimbabwe should improve legislation, create TP databases, improve revenue authorities’ capacity, and increase stakeholder awareness of TP.
Keywords
transfer pricing, multinational enterprises, base erosion, profit shifting, Zimbabwe Revenue Authority (ZIMRA)
JEL classification
Н25References
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About Authors
Wealth Eukeria – Senior Lecturer, Department of Tax and Auditing, School of Accounting, University of Namibia, Windhoek, Namibia (93Q5+48Q, University of Namibia, Windhoek, Namibia), Department of Financial Intelligence, College of Accounting Sciences, University of South Africa, Pretoria, South Africa (Universiteit van Pretoria, Privaatsak X20, Hatfield, Pretoria 0028); ORCID: https://orcid.org/0000-0002-8888-7798; e-mail: ewealth@unam.na
Favourate Yelesedzani Mpofu – Professor, Accounting, Faculty of Commerce, National University of Science and Technology, Bulawayo, Zimbabwe (RJPR+75X, Cnr. Cecil Avenue & Gwanda Road, Bulawayo, Zimbabwe); ORCID: https://orcid.org/0000-0002-6309-1697; e-mail: fsfsebele@gmail.com
For citation
Eukeria W., Mpofu F.Y. Manipulation of Transfer Pricing Rules by Multinational Enterprises in Developing Countries: The Challenges and Solutions. Journal of Tax Reform. 2024;10(1):181–207. doi.org/10.15826/jtr.2024.10.1.164
Article info
Received August 1, 2023; Revised December 5, 2023; Accepted January 30, 2024
DOI: https://doi.org/10.15826/jtr.2024.10.1.164
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