Zambia court ruling against copper mining company is a victory against abusive tax practices

The ruling on 20 May 2020 orders that Mopani pay a total of 240 million kwacha (13 million USD) in taxes assessed for the 2006/07, 2007/08 and 2009/10 tax years within 30 days, bringing to an end a dispute that has been running since 2010.

 

Mopani had appealed to the Supreme Court after a decision was handed down by Zambia’s Tax Appeal Tribunal in December 2010 in favour of tax assessments raised by the Zambia Revenue Authority (ZRA) after audits it had conducted brought to light that Mopani had under-priced copper sold to its shareholder company Glencore International AG (GIAG), thus reducing its tax liability.  

The ZRA argued that based on its audit findings it had established that the pricing of the sales to GIAG were significantly lower than pricing of sales to third parties such as Chambishi and ZAMEFA. 

The ZRA concluded that in terms of Section 97A of the Zambian Income Tax Act the “actual condition” on the sales to GIAG were not in line with the expected arm’s length conditions as defined in that section. The ZRA concluded that one of the main purposes of the transactions was the reduction of tax liability.  

This form of transfer pricing between multinational corporations and their African subsidiaries is typical of the tax avoidance practices employed by corporate taxpayers primarily to reduce their tax liabilities, as Zambia’s Supreme Court made clear in the opening paragraph of its judgement:

“The dispute in this appeal is archetypal of the problem posed to the fiscus of many developing economies by multinational corporations engaged in the extractive industry. It also in a way highlights the inadequacy of institutional capacity to deal effectively with such corporations; exposes yearning gaps in the much-needed expertise to gather and interpret essential technical information for enhanced tax revenue collection from multinational corporations.”

ATAF congratulates the Zambia Revenue Authority, which is a member of the African Tax Administration Forum, on winning its first transfer pricing case in the highest court of the country. ATAF’s Technical Advisor on international taxation provided advice to the Zambia Revenue Authority during the course of this case.

“This important judgment illustrates the fact that our members are determined to tackle the transfer pricing abuses that many corporations have been practicing with impunity for many years. ATAF is committed to assist its members fight for their fair share of taxes, money that should rightfully be paid to them, and has not been paid due to the undervaluation of their natural resources, ” said Mr Logan Wort, Executive Secretary of ATAF.  

Lee Corrick: Technical Advisor on international taxation 

Email: lcorrick@ataftax.org

Telephone: +27 (0) 79 806 9567 

Romeo Ella – Communications manager

Email: rnkoulouella@ataftax.org 

Telephone: +27 (0) 79 790 2960