Zambia issues transfer pricing regulations: what taxpayers need to know

On 6 April 2018 Zambia officially gazetted new transfer pricing legislation (the Regulations), which came into effect on 1 January 2018. Some of the features of the new legislation are summarised below:
  • The Regulations are in line with the transfer pricing legislative framework developed by the African Tax Administration Forum (ATAF), which are based on the OECD’s transfer pricing guidelines for multinational enterprises and tax administrations (OECD Guidelines) and the United Nations practice manual on transfer pricing for developing countries (UN TP Manual). Nevertheless, should there be any inconsistency between the Regulations and the OECD Guidelines or the UN TP manual, the Regulations shall prevail to the extent of the inconsistency.
  • The Regulations apply to controlled transactions, i.e. transactions between associated persons as defined in section 97A of the Zambian Income Tax Act.
  • The Regulations contain rules that need to be followed in terms of comparability, choice of transfer pricing method, arm’s length range, etc.
  • The Regulations also provide specific considerations for services between associated persons and transactions involving intangible property. It is interesting to note that Zambia is the first country in Africa to introduce the low value added service concept.
  • Transfer pricing documentation (TP documentation) requirements apply to taxpayers whose annual turnover is above 20 million Zambian Kwacha (approximately USD 1.9 million). However, this threshold does not apply to multinational enterprises. Hence, companies that form part of a multinational group and entered into a controlled transaction will have to prepare and maintain TP documentation irrespective of the size of their operations in the country.
  • TP documentation must be contemporaneous (generated when a person is developing or implementing a controlled transaction) and prepared on an annual basis. The Regulations provide a list of information that is required to be included in the TP documentation.
  • In addition to contemporaneous TP documentation, taxpayers need to main additional information that is largely in line with the OECD’s master file requirements. This information needs to be prepared by the due date of the annual return submission.
Given these new Regulations, it is important for taxpayers operating in Zambia to be prepared to comply with them. It should be noted that, even though the Regulations require documentation to be prepared with effect from 1 January 2018, this does not prevent the Zambian Revenue Authority from requesting taxpayers to submit supporting documents for earlier periods. At Graphene Economics ™ , we help our clients to navigate the complexities of transfer pricing in Africa, and would be happy to have a discussion how we might be able to assist in addressing these new Regulations. Drop us a mail if you’d like to chat.