By Rubeena Dina & Kennedy Munyandi, GTS Africa
Zambia’s government has issued transfer pricing regulations addressing country-by-country reporting, which became effective 1 January 2021.
The new regulations, published as Statutory Instrument (SI) No. 117 of 2020, are consistent with OECD guidelines on appropriate use. They provide that Zambia’s Commissioner-General will use the country-by-country report for high-level assessment of transfer pricing risks and potential noncompliance as well as other base erosion and profit shifting related risks in Zambia.
The statutory instrument confirms that transfer pricing adjustments will not be based on the country-by-country report. This position is also in line with the BEPS Action 13 final report and the OECD guidelines.
Notification disclosure
A tax resident constituent entity is required to notify the Commissioner-General whether it is the ultimate parent entity or surrogate parent entity by the last day of the group’s reporting accounting year. If a tax resident constituent entity is not the ultimate parent entity or surrogate parent entity, it must provide the Commissioner-General with the name and tax residence of the reporting entity by the last day of the reporting accounting year of the group.
It needs to be pointed out that the definition of constituent entities includes permanent establishments.
A tax resident ultimate or surrogate parent entity of a multinational group will be required to submit a country-by-country report if the group’s constituent entities’ consolidated revenue exceeds Zambia Kwacha 4,795 million (EUR 750 million). Under certain circumstances, a tax resident constituent entity other than a parent might be required to file a country-by-country report.
Country-by-country report
The country-by-country report must be filed within 12 months after the last day of the reporting accounting year of the group. Hence the first report to be filed for the accounting year ended 31 December 2021 will be 31 December 2022.
The statutory instrument does not cover the scenarios where multinational groups have fiscal years ending other than 31 December. If Zambia follows the 2015 OECD guidance on the implementation of country-by-country reporting, these entities will file their first report in 2023.
A standard template report is included in the statutory instrument and the information requirements are aligned with the OECD template.
Taxpayers must provide aggregate financial information for each jurisdiction in which the multinational operates, identify each constituent entity and the country of tax residence, identify the country of incorporation where different from tax residence, and disclose the nature of each entity’s business.
A tax resident constituent entity that is not the ultimate parent entity or surrogate parent entity will only be under the obligation to file a country-by-country report where its ultimate parent entity is not obliged to file a report in its tax residence jurisdiction or where the state in which the ultimate parent entity is tax resident, whilst having an international agreement with Zambia, does not have a qualifying competent authority agreement with the latter or where there is a systemic failure in the tax resident country of the ultimate parent entity and the Commissioner-General notifies the constituent entity in Zambia.
If there is more than one tax resident constituent entity and a requirement to file a country-by-country report applies, then the group may designate one entity to file the report. In such a case, the filing entity will notify the Commissioner-General that all constituent entities resident in Zambia have satisfied the filing requirement.
Concluding thoughts
Zambia is not yet a signatory to the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports (CbC MCAA). Until the CbC MCAA or another exchange of information mechanism is in place, constituent entities that are not ultimate parent entities or surrogate parent entities will have to file their country-by-country reports with the Commissioner-General even though their ultimate parent or surrogate parent companies filed a country-by-country report in their home jurisdiction. That is, in our opinion, any company that is tax resident in Zambia and is a member of a multinational group will be required to file a CbC report until such a time that Zambia starts to exchange CbC reports through membership to the MCAA or through other exchange of information mechanism.
In all circumstances, constituent entities need to ensure that the information they provide in their country-by-country reports is aligned with their local and master files. Material differences can trigger queries by the tax authority.
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