Tax is an important tool for any country’s development. The collection of tax depends on the effectiveness of the tax legislation of a country, among other things. The taxation of domestic income poses fewer problems when it is dealt with through local legislation. The problems are likely to increase when dealing with tax with foreign elements. This is apparent in the taxation of associated multinational corporations operating across countries, where goods and services are transferred through transfer pricing. The intercompany transactions may offer transfer pricing manipulation with a view to maximizing profit. In response to this concern, the arm’s length principle is used to curb transfer pricing manipulation. This article examines transfer pricing provisions as provided for in the Tanzania Income Tax Act and identifies legal gaps that are likely to impede the application of the arm’s length principle. It calls for amendment of the act to address existing concerns.