Zambia: Supreme Court rules in ZRA v. Nestlé transfer pricing case

Zambia’s Supreme Court upholds ZRA’s transfer pricing audit on Nestlé Zambia, confirming low-risk distributor status and reinstating a ZMW 13.8 million tax assessment.

The Supreme Court of Zambia delivered its decision on transfer pricing in Zambia Revenue Authority (ZRA) v. Nestlé Zambia Limited (NZL), Appeal No. 03/2021, on 20 August 2025.

The case arose from a ZRA audit of NZL covering 2010–2014, which recharacterised the company as a low-risk distributor and applied the Transactional Net Margin Method (TNMM), resulting in an additional tax assessment of ZMW 13.8 million.

The Tax Appeals Tribunal had upheld the audit but annulled the assessment, citing improper methods and comparables. ZRA appealed to the Supreme Court on five grounds, while NZL filed a cross-appeal disputing its low-risk classification and challenging the Tribunal’s jurisdiction.

The Supreme Court ruled largely in favour of ZRA, confirming that the burden of proof rests with taxpayers once an assessment is made, validating the use of TNMM for low-risk distributors, permitting aggregation of related-party transactions, and allowing comparables from emerging markets such as India and Brazil. The Court also affirmed NZL’s classification as a low-risk distributor but held that the Tribunal exceeded its jurisdiction in ordering a reassessment.

As a result, the Court reinstated ZRA’s assessment and ordered NZL to pay the full ZMW 13.8 million plus costs. The decision provides critical guidance for multinationals operating in Zambia, underlining the importance of transfer pricing documentation, economic comparability in benchmarking, and accurate classification of functions, assets and risks.

The Supreme Court ruled that under Section 106 of the Income Tax Act, the taxpayer must provide evidence once assessed. ZRA’s audit was justified, but the Tribunal erred in ordering a reassessment. NZL was confirmed as a low-risk distributor, with major risks held by Nestlé South Africa. The Court partly allowed ZRA’s appeal and dismissed NZL’s cross-appeal. The ruling upheld NZL’s obligation to prove its transfer prices were at arm’s length.