Introduction
The Government of the Republic of Zambia, on 30 December 2020, published Statutory Instrument (SI) No. 117 of 2020 whereby it establishes country-by-country reporting regulations. The regulations became effective on 1 January 2021.
Consistent with OECD guidelines on appropriate use, the country-by-country (CbC) report will be used by the Commissioner-General for high-level assessment of transfer pricing risk and potential non – compliance 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 CbC report. This position is also in line with the BEPS action 13 final report and the OECD guidelines
Notification disclosure
A tax resident ultimate or surrogate parent entity of a multinational group will be required to submit a CbC report if the consolidated revenue of the constituent entities of the group exceeds Euro 750 million or Zambia Kwacha 4,795 million. Under certain circumstances, a tax resident constituent entity other a parent might be required to file a CbC report (see below).
It needs to be pointed out that the definition of constituent entities includes permanent establishments.
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 reporting accounting year of the group.
Where a tax resident constituent entity is not the ultimate parent entity or surrogate parent entity, it needs to provide the Commissioner-General with the name and tax residence of the reporting entity equally by the last day of the reporting accounting year of the group.
Country-by-Country report
As indicated above, ultimate parent entities which are resident in Zambia and which satisfy the consolidated revenue threshold will need to file country-by-country report within 12 months after the last day of the reporting accounting year of the group. Hence the first report to be filed by such entities for the accounting year ended 31 Dec 2021 will be 31 Dec 2022.
The statutory instrument does not cover the scenarios where multinational groups have fiscal years ending other than 31 December. If the 2015 OECD guidance on the implementation of country-by-country report is referred to, then it is likely that the first report will be filed in Zambia by these entities later in 2023.
A standard template report is included in the statutory instrument and the information requirements are aligned with the OECD template in that aggregate financial information by jurisdictions in which the multinational operates, the identification of each constituent entity in the group with the country of tax residence as well as country of incorporation where different from tax residence and the nature of business of each entity need to be provided.
A tax resident constituent entity which 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 are more than one tax resident constituent entities and there is the requirement to file country-by-country report as conditions set out in the previous paragraph apply, then the group may designate one of them to file the report and notify the Commissioner-General that all the 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). If an agreement will not be in place, then constituent entities which are not ultimate parent entities or surrogate parent entities will have to file their reports with the Commissioner-General even though their ultimate parent or surrogate parent companies have filed a country-by-country report in their jurisdictions. That is, in our opinion, any company that is tax resident in Zambia and is a member of 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 any circumstances, constituent entities need to ensure that the information they provide in their country-by-country reports are aligned with their local and master files. Material differences can trigger queries by the tax authority.
The comments in this article are for general information and are not intended as advice. Readers should seek professional advice where relevant.