ZAMBIA Law and Practice Contributed by: Mulenga Chiteba, Constance Namatai Mwango and Bwalya Milunga, Mulenga Mundashi Legal Practitioners
1. Rules Governing Transfer Pricing 1.1 Statutes and Regulations The rules governing transfer pricing include legislation and various regulations. These are the Income Tax Act, Chapter 323 of the Laws of Zambia (the “Income Tax Act”) as read with the Income Tax (Transfer Pric - ing) Regulations, and Statutory Instrument No 20 of 2000 (the “Transfer Pricing Regulations”) (collectively, the “Transfer Pricing Rules”), as amended by the fol - lowing regulations: • the Income Tax (Transfer Pricing) (Amendment) Regulations, Statutory Instrument No 24 of 2018; • the Income Tax (Transfer Pricing) (Amendment) Regulations, Statutory Instrument No 117 of 2020; • the Income Tax (Transfer Pricing) (Amendment) Regulations, Statutory Instrument No 107 of 2021; • the Income Tax (Transfer Pricing) (Amendment) Regulations, Statutory Instrument No 89 of 2022; and • the Income Tax (Transfer Pricing) (Amendment) Regulations, Statutory Instrument No 62 of 2023. 1.2 Current Regime and Recent Changes Transfer Pricing Rules in Zambia were first intro - duced in 1999 under Section 97A of the Income Tax Act Chapter 323 of the Laws of Zambia (“Income Tax Act”), and the Income Tax (Transfer Pricing) Regula - tions, Statutory Instrument No 20 of 2000 (the “Trans - fer Pricing Regulations”) in the year 2000. However, the Zambian government only began to focus on major transfer pricing reforms in 2012, when four offic - ers from the Zambia Revenue Authority’s (ZRA) Large Taxpayers Office undertook transfer pricing audits within mining and non-mining audit units. These reforms commenced when the ZRA became aware of the need for robust documentation rules to clarify taxpayer expectations and avoid unnecessary delays in the audit process. In March 2016, the ZRA created a Transfer Pricing Unit comprising four officers with the aim of providing a direct focus on transfer pricing audit cases, which generally take a longer period of time to conclude compared with normal audits. Additionally, the ZRA had noted that without specific guidelines taxpayer compliance was difficult to enforce regarding the need
to prepare a transfer pricing policy document for the relevant group. This is in view of the fact that the ZRA, in ensuring compliance, relied on the general provi - sions in the Income Tax Act to compel taxpayers to submit transfer pricing documentation and informa - tion. In 2017, the Zambian government joined the Inclu - sive Framework on Base Erosion and Profit Shifting (BEPS) and agreed to adopt the BEPS project agree - ment, the country-by-country reporting measures to prevent tax treaty shopping, and the minimum stand - ards that were set out by the OECD and G20 nations in 2015. In doing so, the government aimed to increase tax revenue payments and reduce the tax burden on easy-to-pay taxes by creating an atmosphere of fair - ness among companies that are liable for tax, which, it was hoped, would lead to voluntary compliance. In view of the foregoing, the government strengthened the Transfer Pricing Rules by amending the Transfer Pricing Regulations. Major changes were introduced in 2018 when these amendments introduced, inter alia, provisions relating to the arm’s length principle and preparation of transfer pricing documentation. In 2021, the requirement for country-by-country report - ing was introduced, and further amendments were made to the Transfer Pricing Regulations in 2022 and 2023. In 2024, the provisions of the income tax were amend - ed to enhance clarity and coherence in determining the timeline for submitting claims related to transfer pricing when legal proceedings are involved. Section 97A(11) of the Income Tax Act outlines prerequisites for claiming credit under a Double Taxation Agreement for foreign tax, emphasising the exclusion of any for - eign tax amount not meeting arm’s length conditions. It underscores that the determination of income eligi - ble for credit should align with arm’s length conditions. Section 97 (11A) imposes a time limit, stipulating that claims must be submitted within twelve months from the assessment date. The crux of the recent amend - ment, encapsulated in Section 97A(11B), addresses a procedural nuance, in that for cases under litigation, the date of determination or the final ruling shall be considered as the date of assessment. It states that in cases where a decision under Section 97A is under
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