1. TAXATION OF LARGE TAXPAYER ENTERPRISES
Taxation of Multinational Enterprises (MNEs) – A case of the Zambia Revenue Authority By
Mr. Wisdom M. Nhekairo
Commissioner General

2. OUTLINE Rationale for setting up the Large Taxpayer Office
Services provided by the Large Taxpayer Office
Challenges and Risks posed by MNEs
Dealing with Challenges

3. RATIONALE FOR SETTING UP THE LARGE TAXPAYER OFFICE
It is a commonly observed phenomenon globally that a small
group of largest taxpayers account for the majority of tax take in
any given economy:
Given this importance, a recent trend in tax administration has been to pay particular and targeted attention to this group of taxpayers,
A common approach has been to establish an integrated Large
Taxpayer Office.
This approach is fundamentally premised on a one stop shop concept that provides the ability to deal with the taxpayer conclusively

4. RATIONALE CONT. All tax types are handled from one office
Ensure adherence to standards enumerated in the taxpayer charter
Enhanced relationships with corporate taxpayers based on intimate knowledge of the industry and business
Proactive approach in dealing with our taxpayers
Improved Service delivery arising from a productive interaction that demonstrates insight into unique business needs.
Moving away from one size fits all approach
Reduced administrative and compliance costs on both the taxpayer and the Revenue Authority

5. ORGANIZATION GOVERNANCE
Based on the forgoing principles ZRA made deliberate steps to Introduce
the Large Taxpayer Office (LTO) concept in he last quarter of 2008
following the Modernisation project of the Domestic Taxes Division
with the help of the IMF. The LTO is headed by a Director reporting to
the Commissioner Domestic Taxes and this office handles Income Tax,
VAT and Mineral Royalty. In particular the ZRA LTO comprises four
Units thus:
Taxpayer Services
Processing and Enforcement
Audit (Two units within this – Mining & Non Mining)
Business System Support and Intelligence

6. TAXPAYER SERVICES UNIT
The LTO Taxpayer Services Unit performs the following functions:
Taxpayer Information – Providing timely information to clients
Registration – Processes registrations on all taxes handled by LTO
Taxpayer Education – Engaging clients on topical issues affecting them and providing the necessary guidance
Client Relationship – Enhancing taxpayer relations based on mutual respect, trust and transparency.

7. PROCESSING & ENFORCEMENT SERVICES UNIT
The LTO Processing & Enforcement Unit performs the following functions:
Receipt & Processing of tax returns and payments
Taxpayer Accounting
Processing of tax refunds
Debt Management

8. AUDIT UNIT
The Large Taxpayer Office has two distinct audit units, that are the Mining and Non Mining Units.
The mandate of these two Units are :
Undertake Risk Based & Issue Focused Audits e.g. credibility checks
Undertake integrated audits

9. BUSINES SYSTEM SUPPORT & INTELLIGENCE UNIT
The LTO Business System Support and Intelligence unit performs the following functions:
Taxpayer Risk profiling
Business analysis
Implement Risk analysis in all work processes

10. TAXPAYER SELECTION CRITERIA
For a taxpayer to qualify to belong to the Large Taxpayer Office they must meet the following criterion.
Taxpayers with turnover of K20 billion and above;
Specialized industries or business sectors operating in the following sectors Mining, Finance and Insurance sectors; or
Multinationals with their group companies

11. CHALLENGES & RISKS
The major challenges and risks the LTO faces include the
following:
Transfer Pricing – setting prices, conditions and terms on transactions with related parties on cross border transactions in such a way that profits arise in a country determined by the the MNE determines.
Thin Capitalisation – Exploiting tax deductible interest flows.
Hedging Transactions – Structuring complex commodity hedging transactions in such way that losses are reported in a country determined by the MNE
Intragroup services - Pricing of management fees and technical services among others at non arms length basis and also whether these services have in fact been provided.

12. CHALLENGES & RISKS
Effective systems audit – Effective audit of the taxpayer’s accounting information system so at to obtain assurance on the integrity of the information provided by the accounting system.
Treaty Shopping – Incorporating parent companies in countries that have DTAs with the country of residence of the subsidiary company for the purposes of exploiting DTA provisions that have lower tax rates on certain transactions like , Interest, Royalties and Management and Consultancy fees that the parent company will undertake with the subsidiary.

13. DEALING WITH CHALLENGES
The ZRA as been using a number of methods aimed at addressing
the challenges and risks posed by MNEs:
Legislation - The tax law has provisions for limiting transfer pricing and thin capitalisation
Capacity building of staff:
through training and workshops in specialised courses offered by CATA, ATAF, OECD among others.
Cooperation with other tax jurisdictions, currently the Revenue authority has an MoU with the Norwegian Tax Administration aimed at strengthening specialised large taxpayer revenue administration.

14. DEALING WITH CHALLENGES Cont’d
Transfer Pricing Practice note for staff to refer to during the course of their work.
Enhanced Integrated audits
Fostering enhanced relationships with taxpayers aimed at sensitizing them on various tax concerns.

15. CONCLUSION The LTO has since scored the following successes:
Increased level of voluntary disclosures by taxpayers on tax underpayments.
Reduced cost of enforcement for the Revenue Authority.
Reduced cost of compliance for the taxpayers.

16. Thank You