RSM Tanzania Thought Leadership Series: What Are “Shadow Transactions” in Transfer Pricing?

Not every transaction within multinational groups is captured in formal contracts. Subsidiaries often benefit from implicit support from their parent companies; such as better borrowing terms, comfort letters, or informal guarantees.

These are what we call “shadow transactions”: real in effect, but invisible in documentation.

Why does this matter?

Because such arrangements create value. For instance, if a subsidiary secures a loan at 7% instead of 12% thanks to the parent’s backing, tax authorities may view this as a de facto guarantee that warrants compensation. This can trigger:

• Imputed guarantee fees
• Withholding tax exposures
• Increased scrutiny from Revenue Authorities

In this publication, our Transfer Pricing Team explains how shadow transactions work, why they matter, and what businesses should do to stay compliant in an environment of rising TP enforcement.