Factors affecting transfer pricing tax compliance in Zambia: evidence from the mining sector.

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Litho, Robby
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The University of Zambia
Multinational enterprises abuse transfer pricing to erode the country’s tax base by shifting profits to other jurisdictions thereby depriving the country of revenue that would otherwise be available for development. The aim of this study was to assess the factors affecting transfer pricing tax compliance in Zambia, particularly in the Mining sector. Using a descriptive design, the study identified factors affecting tax compliance and specifically investigated, compliance costs, complexity of transfer pricing, and the aggressiveness of the Zambia Revenue Authority. The target population was transfer-pricing practitioners working in different capacities in the mining sector. The study collected primary data through a survey questionnaire involving the entire population. The researcher administered the questionnaire online due to covid-19 pandemic considerations. The study further analyzed secondary data on transfer pricing and conducted one-on-one online meetings with industry experts. The data was analyzed using google forms imbedded descriptive statistics and Microsoft excel (office 2016). The study finds that tax compliance costs in Zambia are very high and that transfer pricing is a very complex tax concept with mean scores of 3.66 and 3.70 respectively. Additionally, the study finds that the revenue authority is not aggressive in conducting compliance audits with a mean score of 3.3. Among other factors identified as influencing tax compliance are policy inconsistencies and inadequate enforcement capacity. The study therefore concludes that Zambia lacks the capacity to manage a transfer pricing policy anchored on the arm’s length principle. Accordingly, this study provides much needed evidence of why transfer pricing tax non-compliance persists in the mining sector. This information is important to policy makers given there is very limited literature on this subject in the mining sector. Key words: Transfer pricing, Tax compliance, MNEs, Zambia, BEPS
Transfer pricing--Taxation--Law and legislation. , Transfer pricing Taxation. , Law, tax planning and compliance strategies.