Transfer Pricing De-mystified

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Transfer Pricing De-mystified

Transfer pricing is undoubtedly one of the most topical tax issues for multi-national companies in Zambia.

In April 2018, The Government of the Republic of Zambia through the Ministry of Finance, released new transfer pricing Regulations to supplement the existing legislation and regulation. The new Regulations provide rules on a wide range of transfer pricing issues such as the use of the most appropriate transfer pricing method and specifying the documentation taxpayers must maintain to demonstrate transfer pricing compliance.

While the new regulations give taxpayers clear guidelines in executing transfer pricing obligations, they also introduce onerous compliance requirements. It is therefore prudent (now more than ever) for Multi-National Enterprises to re-evaluate their transfer pricing policies for compliance.

The regulations are intended to govern transactions between related parties. These transactions for the purpose of the legislation are known as “controlled transactions” and the related parties carrying out these controlled transactions are known as “associated persons” or for short, “APs”.

The Government’s regulations are consistent with a global trend where many countries have taken legislative measures to adopt the Organization for Economic Co-operation and Development’s (OECD) final recommendations on Base Erosion and Profit Shifting (BEPS).

The key test that these regulations require is for local companies to justify that their controlled transactions with their APs meet the arm’s length standard. This means that a controlled transaction should reasonably meet the terms that it would have been carried out under had it been with an entirely independent party.

Who is affected by Transfer pricing regulations?

The regulations affect local companies that are part of a Multi-National Enterprise or are part of a local group with revenues exceeding ZMW20 million.

Under these regulations, persons engaging in controlled transactions are required to prepare contemporaneous transfer pricing documentation (in the form and manner prescribed in the regulations) that demonstrates that the company’s transactions with its related parties are being carried out at arm’s length. The persons that are carrying out controlled transactions are expected to perform an annual evaluation of their transactions with Associated Persons and document that they have done so and the results of the evaluation and make necessary amendments to their income tax returns if necessary. They are expected to maintain the transfer pricing documentation and must provide it to the Zambia Revenue Authority within 30 days of being requested. Failure to provide the documentation within the 30 days will attract penalties of ZMW24 million.

What we can do for you....

Our transfer pricing team of specialists assists in with formulating transfer pricing policies that meet the requirements set forth in sections 97A to 97D of the Income Tax Act, Chapter 323, of the Laws of Zambia (“the ITA”). In doing so, we help you establish robust transfer pricing policies and the procedures for complying with these regulations. We help you carry out benchmarking reviews to determine whether your controlled transactions meet the arm’s length test and where they do, we compile evidence to demonstrate this and where they do not, we assist with determining the adjustment required to your Income Tax return.

How can we help you?

Contact us by phone +260211258705 or submit your questions, comments, or proposal requests.

Email us