ZAMBIA Trends and Developments Contributed by: Mulenga Chiteba, Constance Namatai Mwango and Diana Chisale, Mulenga Mundashi Legal Practitioners
Shaping the Future of Transfer Pricing in Zambia: Insights from the Supreme Court’s Nestlé Decision Introduction Transfer pricing has become one of the most strategi - cally important areas of tax enforcement in Zambia, particularly in the mining, manufacturing, and fast- moving consumer goods sectors dominated by mul - tinational enterprise (MNE) groups. Historically, Zambia relied heavily on statutory arm’s length provisions and administrative discretion by the Zambia Revenue Authority (ZRA). However, increasing audit activity, litigation, and judicial scrutiny culminat - ing in the case of Zambia Revenue Authority v Nestlé Zambia Limited , Supreme Court of Zambia (SCZ) Appeal No 3 of 2021 whose judgment was delivered on 20 August 2025. This judgment by the Supreme Court of Zambia (the “Court”) has progressively refined the legal architecture governing related-party pricing. This article therefore examines how the deci - sion has reshaped Zambian jurisprudence on trans - fer pricing and situates it within wider regulatory and policy development framework. Developments emerging from the decision of the Court The Nestlé Zambia Limited (“ Nestlé ”) litigation repre - sents the most sophisticated judicial engagement with transfer pricing in Zambia to date. It marks a shift from largely administrative interpretation toward court-driv - en articulation of governing principles. Several doc - trinal clarifications can be derived from the judgment. Re-framing the arm’s length principle Prior to the judgment delivered by the Court, the arm’s length principle existed primarily as a statutory direc - tive within the Income Tax Act, Chapter 323 of the Laws of Zambia (ITA) and subsidiary regulations, with little judicial exposition. In practice, the principle was often applied mechanically; the ZRA would identify a margin or price derived from selected comparables and substitute it for the taxpayer’s outcome, some - times without a detailed exposition of the underlying functional profile of the local entity. Courts had not yet articulated whether or not the arm’s length inquiry required an examination of economic substance, contractual risk allocation, and group val -
ue-creation. Consequently, multinational taxpayers faced uncertainty as to the depth of analysis that a court might require from the ZRA. In the Court’s decision, it approached the arm’s length principle as a multi-layered economic inquiry, not a mere arithmetic adjustment. It examined: • the actual functions performed by Nestlé Zambia Limited; • the risks assumed locally as opposed to offshore affiliates; and • the commercial logic of intra-group pricing struc - tures. This reasoning aligns Zambia with international juris - prudence that treats arm’s length pricing as an exer - cise in delineating the real transaction before testing price or margin. The Court implicitly rejected superfi - cial reliance on accounting outcomes divorced from operational reality. Expanded conception of “closely linked transactions” and the permissibility of aggregation under the arm’s length principle In addressing ground two of the ZRA’s appeal, the Court articulated a very important principle when defining or ascertaining the application of the arm’s length principal in Zambian transfer pricing jurispru - dence which relates to the circumstances under which multiple related-party transactions may legitimately be aggregated and tested together for arm’s length purposes rather than being assessed strictly on a transaction-by-transaction basis. According to standard practice, the literal reading of domestic transfer pricing regulations tended toward analysis of each individual transaction, with each intra-group dealing examined separately unless the taxpayer could demonstrate a compelling reason to bundle transactions. The Tax Appeals Tribunal had adopted this narrow approach, concluding that the various dealings between Nestlé and its related off - shore entities should be tested individually, and that aggregation was impermissible under the OECD Transfer Pricing Guidelines.
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