ZAMBIA Law and Practice Contributed by: Mulenga Chiteba, Constance Namatai Mwango and Bwalya Milunga, Mulenga Mundashi Legal Practitioners
Taxpayers must retain documents and records relating to transfer pricing for ten years from the date of the last entry in those documents and records. The docu - mentation must contain information that verifies that the conditions in a taxpayer’s controlled transactions for the relevant tax year are consistent with the arm’s length principle. The documentation must reflect the following: • the controlled transactions, including the nature, terms and price of each controlled transaction, details of property transferred, or services provid - ed, and the quantum and value of each respective transaction; • the identity of associated persons involved and the relationship between the associated persons; • a detailed comparability analysis of the person and associated person with respect to each docu - mented category of controlled transaction, includ - ing the functions performed, risks, borne tangible and intangible assets used, and any changes made compared to prior years; • details of other controlled transactions that directly or indirectly affect the pricing of the subject con - trolled transaction; • records of the economic forecasts, budgets or other financial estimates prepared by the person for that person’s business or separately for each division or product that may have a bearing on a controlled transaction; • uncontrolled transactions and information on finan - cial indicators for unrelated parties relied on in the transfer pricing analysis, including a description of the comparable search methodology, and a record of the nature, terms and conditions relating to any uncontrolled transaction with unrelated parties relied upon in the transfer pricing analysis; • the details of any comparability adjustments per - formed, indicating whether they have been per - formed on the tested party or on the comparable uncontrolled transaction, or both; • the transfer pricing methods considered in deter - mining the arm’s length price in relation to each transaction or class of transaction, the method selected as the most appropriate method, why that method was selected, and how that method in each controlled transaction;
• which associated person is selected as the tested party, and an explanation for the choice of the tested party; • a summary of financial information used, and the assumptions made in applying the transfer pricing methodology; • the reasons for performing a multi-year analysis, where applicable; • the assumptions, policies and price negotiations, if any, which have critically affected the determina - tion of the arm’s length price; • details of the adjustments, if any, made to the transfer price to align it with the arm’s length price, and consequent adjustments made to the total income for tax purposes; • the reasons for concluding that the controlled transactions were conducted on an arm’s length basis, based on the application of the selected transfer pricing method; • information and allocation schedules showing how the financial data used in applying the transfer pricing method may be tied to the annual financial statements of the taxpayer; • summarised schedules of relevant financial data for comparables used in the analysis; and • any other information, including information relating to the associated person that may be relevant for determination of the arm’s length price. Transfer pricing documents and records must be pre - pared on an annual basis. 8.2 Transfer Pricing Documentation Zambia has adopted a three-tiered structure that taxpayers must adopt. The master file and local file reports are mandatory, while a country-by-country report must only be prepared and filed with the ZRA subject to meeting certain conditions. 9. Alignment With OECD Guidelines 9.1 Alignment and Differences Zambia’s Transfer Pricing Rules closely align with the OECD Transfer Pricing Guidelines, as they are to be construed in a manner consistent with the OECD Transfer Pricing Guidelines for Multinational Enter -
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