ZAMBIA Law and Practice Contributed by: Mulenga Chiteba, Constance Namatai Mwango and Bwalya Milunga, Mulenga Mundashi Legal Practitioners
or otherwise, as the Supreme Court considers necessary. Because the Supreme Court is Zambia’s final court of appeal, its decision on a particular transfer pricing dispute is final as it does not have the jurisdiction to review its judgments, or to set aside and re-open an appeal. 14. Judicial Precedent 14.1 Judicial Precedent on Transfer Pricing Although Zambia has a well-established legal framework for pursuing transfer pricing, and the ZRA formed a dedicated Transfer Pricing Unit in March 2016, the judicial precedent on transfer pricing is not yet well developed as not many disputes on transfer pricing have been taken to the courts. 14.2 Significant Court Rulings Mopani Copper Mines Plc v The Zambia Revenue Authority – SCZ/8/269/2016 This case is considered the landmark case on transfer pricing in Zambia. It arose from an appeal from the Tribunal in which the Tribunal held against Mopani on a complaint raised by the ZRA disputing certain tax assessments made by the ZRA. In brief, the ZRA undertook an audit on the mining industry’s cost levels, and the exercise involved a tax audit on costs, rev - enues and transfer pricing practices. The audit was largely centred on possible transfer pricing practices between Mopani and its shareholder, Glencore International AG (GIAG), a related party that bought copper at a significantly lower price than the price at which it was sold to third par - ties.
The tax audit raised some concerns regarding certain related party transactions. The issue was whether the transactions between Mopani and GIAG were at arm’s length, given GIAG’s shareholding in Mopani. The ZRA had issued a tax assessment following conclusions that the internal pricing was not decided in line with the arm’s length principle, and that one of the major reasons for the mispricing was to reduce tax liability. Mopani argued that Section 95 of the Income Tax Act was wrongly invoked by the ZRA in the case of transfer pricing as that section can only be invoked where there is reason to believe that the main purpose of the transaction was to avoid or reduce liability with respect to tax, in which case the Commissioner-General of the ZRA would direct that a particular adjustment be made. Section 95(1) of the Income Tax Act provides that: “Where the Commissioner General has reason- able grounds to believe that the main purpose or one of the main purposes for which any trans- action was effected (whether before or after the commencement of this Act) was the avoidance or reduction of liability to tax for any charge year, or that the main benefit which might have been expected to accrue from the transaction within the three years immediately following the com- pletion thereof, was the avoidance or reduction of liability to tax, he may, if he determines it to be just and reasonable, direct that such adjust- ments shall be made as respects liability to tax as he considers appropriate to counteract the avoidance or reduction of liability to tax which would otherwise be effected by the transaction.” The ZRA explained the nature of the symbiot - ic business relationship between Mopani and GIAG and how that special relationship reflected
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