ZAMBIA Trends and Developments Contributed by: Mulenga Chiteba, Constance Namatai Mwango and Diana Chisale, Mulenga Mundashi Legal Practitioners
of development, risk environments, and competitive conditions broadly analogous to those prevailing in Zambia or where appropriate adjustments can be demonstrably made. A particularly important feature of the ruling lies in its treatment of burden of proof. The ZRA argued that Sections 97A and 106 of the ITA impose the primary obligation on the taxpayer to demonstrate that its pric - ing complies with the arm’s length principle. While the Court accepted this statutory starting point, it simulta - neously criticised the Tribunal for failing to interrogate the comparables the ZRA had actually advanced and for not requiring Nestlé to produce its own alternative benchmarking set, especially given that Nestlé had previously relied on wide-ranging global comparables in its group-level transfer pricing reports. This signals that where a taxpayer disputes the authority’s data - set, it is no longer sufficient merely to object in the abstract, but the taxpayer is expected to place rival evidence before the adjudicative body. At the same time, the judgment underscores that the ZRA is not relieved of its own analytical obliga - tions simply because local data is unavailable. Where domestic or continental comparables cannot be found, the authority must undertake a diligent search for companies operating in markets that approximate Zambia’s economic profile and must explain how macro-economic variables such as market maturity, capital intensity, regulatory risk, and consumer pur - chasing power have been factored into the analysis. The Court’s insistence on “fairness in making the comparables” reflects a concern that transfer pricing should not become a mechanical revenue-maximisa - tion exercise divorced from commercial reality. Doctrinally, this aspect of the Nestlé decision marks a decisive move toward a balanced and technically orthodox approach to benchmarking. It confirms that: • local comparables are preferable but not manda - tory; • foreign comparables are admissible where they operate in sufficiently similar economic circum - stances or can be reliably adjusted; and
• both the ZRA and the taxpayer bear evidentiary responsibilities in defending or challenging a benchmarking set. For multinational enterprises, the implication is that African-market scarcity will no longer excuse thin documentation or blanket objections to foreign data. Taxpayers must be prepared to justify why particular jurisdictions are unsuitable and to propose credible alternatives. Evidentiary burden and quality of economic analysis Transfer pricing disputes in Zambia were marked by an implicit presumption in favour of ZRA assessments. Once the Commissioner-General issued an adjust - ment, the taxpayer bore a heavy burden to disprove it, even where the methodology or comparables selected by the authority were not exhaustively explained. Tax - payer documentation, particularly local benchmark - ing studies, was sometimes dismissed summarily, and there was limited judicial interrogation of competing economic models. The Nestlé judgment reframed the evidentiary equilib - rium. While affirming that taxpayers must keep proper documentation and justify related-party pricing, the Court also emphasised that the ZRA cannot rely on bare assertions or calculations. Instead it must: • demonstrate why a particular method was selected; • explain the rejection of alternatives; and • justify the comparability set employed. This creates a reciprocal burden of proof that taxpay - ers must produce contemporaneous transfer pric - ing reports grounded in economic data and that the ZRA must meet those reports with analytically rigor - ous counter-evidence rather than broad discretion. In practical terms, the decision raises the technical threshold for both sides. Judicial recognition of OECD Transfer Pricing Guidelines Before Nestlé , OECD Transfer Pricing Guidelines were routinely cited by practitioners and the ZRA, but their legal status remained uncertain. They were treated as helpful reference materials rather than authoritative interpretive tools.
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