By Ignatius Mvula, Assistant Director – Mining Audit Unit, Zambia Revenue Authority, Mary Baine, Director – Tax Programmes, African Tax Administration Forum, and Ben Dickinson, Head of the Global Relations and Development Division, Centre for Tax Policy and Administration, OECD
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In May 2020, the Zambian Revenue Authority (ZRA) won a landmark tax case against Mopani Copper Mining plc in the Supreme Court. The Court ordered the company to pay additional tax of 240 million Kwacha (USD 13 million). The judgement hinged on Zambia making a technical case showing evidence of tax avoidance through base erosion and profit shifting or BEPS strategies. In countries around the world multinational enterprises (MNEs) exploit gaps and mismatches between different countries’ tax systems, costing countries up to 100-240 billion USD in lost revenue annually, the equivalent to 4-10% of the global corporate income tax revenue. Moreover, developing countries’ higher reliance on corporate income tax means they suffer from tax base erosion and profit shifting disproportionately. Zambia and many African tax administrations report that the abuse of transfer pricing rules – the pricing of goods and services between related parties of a multinational enterprise – represents one of the highest BEPS risks to their tax bases.
The Mopani case was one of the first large transfer pricing cases dealt with by the Zambian Revenue Authority. The dispute with Mopani Copper Mining plc was over the pricing of copper it sold to its shareholder company, Glencore International AG located in Switzerland. Building on the advice and training received through a long-term technical assistance programme delivered by the African Tax Administration Forum (ATAF), the OECD and the World Bank Group, the Zambian Revenue Authority built its case, contending that Mopani Copper Mining plc had under-priced copper sold to Glencore International AG, thus reducing its taxable income and hence its tax liability. The Zambian Revenue Authority argued that the prices of copper sold to Glencore International AG were significantly lower than those of similar sales to third parties. In December 2016, the Zambian Tax Appeals Tribunal upheld the tax assessments raised by the Zambian Revenue Authority. Mopani Copper Mining plc appealed to the Supreme Court, who on 20 May 2020, ruled in favour of the Zambian Revenue Authority.
Zambia has made great efforts to combat abuses through BEPS in recent years by building the audit skills of Zambian Revenue Authority officials and improving the Zambian legislative framework for transfer pricing and other BEPS related issues. And in 2017, Zambia joined the OECD/G20 Inclusive Framework on BEPS, an international coalition of 137 jurisdictions working together to end tax avoidance. To improve its tax audit capacities, Zambia joined the Tax Inspectors Without Borders (TIWB) initiative in 2018, and most recently the BEPS in Mining Programme, run by ATAF, the Intergovernmental Forum on Mining, Minerals, Metals and Sustainable Development (IGF) and the OECD, which provides targeted support on transfer pricing audits in the mining sector and on improving related legislation.
|Since 2015, the Zambian Revenue Authority has achieved significant results on their transfer pricing audit work, including: |
– USD 133 million of assessed tax
– USD 111 million of collected tax
The landmark victory in the Mopani case sends a message beyond Zambia, that African tax authorities are able and confident to take on and deal with complex transfer pricing transactions. The dispute, which was long and complex, demonstrates the value of long-term and patient capacity building support, which equipped the Zambian Revenue Authority’s audit and legal teams to confidently and competently tax multinational enterprises, and ultimately generate additional tax revenue for the Zambian Government.
The Zambia case study is part of a new case study series on tax and development, which the OECD’s Centre for Tax Policy and Administration and its partners such as ATAF, are launching today. More case studies on Georgia, Pakistan, Senegal, Tunisia and Uganda will follow.