When Cost Pools Collapse: A Transfer Pricing Cautionary Tale

Aggreko International Projects Limited Tanzania Branch (“Aggreko Tanzania”) vs. Tanzania Revenue Authority (TRA) (2025)

In December 2025, the Court of Appeal of Tanzania (“the Court”) upheld a judgment initially delivered by the Tax Revenue Appeals Board (“TRAB”) in April 2024 and the Tax Revenue Appeals Tribunal (“TRAT”) a year later in 2025. This judgement stated that the head office expenses that had been deducted in Aggreko Tanzania in arriving at its taxable income in relation to its 2018 and 2019 financial years were not deductible. These expenses had been allocated to Aggreko Tanzania by its group’s regional hub in Dubai. This article outlines the initial dispute, the facts of the case, and the factors that led to the judgement.

Setting the Scene

Aggreko International Projects Limited is a United Kingdom (“UK”) based company operating in the utilities industry and specialising in power generation and energy supply. The company has a branch in Tanzania which is a permanent establishment (“PE”) of the UK entity. In 2018 and 2019, the group’s Dubai-based regional hub allocated head office expenses to Aggreko Tanzania. From an income tax perspective, the expenses were disallowed following an audit in 2022, during which the TRA concluded that the expenses were not deductible owing to “[Aggreko Tanzania]’s failure … to provide documentation evidencing a clear and verifiable allocation of costs in terms of section 11(2) of the Income Tax Act.” Aggreko Tanzania objected to the TRA’s assessment on the grounds that “the head office costs allocated to the branch were incurred wholly and exclusively for the production of its income and allocation is carried out on a pro rata basis according to revenue generated in each country.”

The TP Lens

Why Aggreko Tanzania lost under the OECD’s Intra-Group Services Principle and domestic law

The Court’s judgement supported the findings of the TRAB and TRAT that:

• Aggreko Tanzania failed to demonstrate how the expenses were incurred solely for income generation;

• Reliance on transfer pricing regulations does not override the statutory requirement under section 11(2); a mere allocation of pooled head office costs does not make them deductible under section 11 (2) of the Income Tax Act.

From a TP perspective, we further highlight that Aggreko Tanzania failed to demonstrate the benefit that it enjoyed which resulted in the expenses incurred and could not back the recharge with appropriate evidence . Paragraph 7.5 of the OECD TP Guidelines states that the two issues in the analysis of TP for intra-group services are:

1. Whether the intragroup services have, in fact, been provided (including consideration of the Benefit Test); and
2. What the intragroup charge for such services should be in terms of the arm’s length principle.

As part of determining whether (or not) the intragroup services have, in fact, been provided, one must consider the following:

• Benefit Test – the Benefit Test is demonstrated as follows:
  • Services rendered: Did the recipient require the intra-group services in order for it to have been able to operate its business?
  • Benefits received: Had the recipient not received the services from the provider, would it have needed to perform the functions internally or outsource the services to another (related or unrelated) entity?
  • Willingness to pay: Was the recipient willing to pay for the services?

• Shareholder Activities – The activities performed by the provider in rendering the services to the recipient should not include any shareholder activities (e.g., group oversight, governance etc.).

• Duplication – The activities performed by the provider in rendering the services to the recipient should not be a duplication of any other services that the recipient is already performing internally or receiving from another (related or unrelated) service provider.

• Incidental Benefits – The services rendered by the provider to the recipient should not provide only incidental benefits but should be an essential component of and provide true economic value for the recipient’s business.

• Centralised Services – The recipient would have performed the functions internally or outsourced the services from another (related or unrelated) entity if it had not received the services from the recipient. Furthermore, the services should generally be administrative in nature.

The non-deductibility of the expenses also highlights these key TP principles:

• Aggreko Tanzania could not demonstrate how it benefitted from the expenses – being part of a group or receiving centrally incurred services does not automatically imply a benefit.
• Aggreko Tanzania could not separate true operational services (i.e., those rendered directly for the benefit of Aggreko Tanzania’s business) from group pooled costs and shareholder expenses.
• There was insufficient evidence of the arm’s length nature of the expenses. Aggreko Tanzania relied on pooled regional expenses and allocation formulas but was unable to provide underlying evidence to prove that the allocation key used reflected its actual service consumption.

Key Takeaways from this Case

This case has been widely discussed from an income tax lens, but it also provides an important reminder of key transfer pricing principles that should remain top-of-mind for all MNEs receiving centralised services:

• Robust documentation and evidence: It is important to maintain documentation that demonstrates that services were in fact received as well as validity of the expenses you wish to deduct as a taxpayer. It’s crucial that the service recipients understand the requirement for intra-group services and maintain relevant evidence to discharge their burden of proof. No evidence – no deduction!

• Domestic legislation matters: Taxpayers must ensure that their methods align; not only with the OECD TP Guidelines, but with the legislation of the relevant country as well.

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