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Potential Corporate Tax Avoidance in Zambia’s Mining Sector?

Estimating Tax Revenue Gains from Addressing Profit Shifting or Revising Profit Allocation Rules: A Case Study of Glencore and Mopani Copper Mines.

This report presents a quantitative tax analysis to determine the potential level of Mopani’s profit shifting (and foregone Zambian tax revenue). Determining the true level of profits is a complex and imprecise exercise. The report therefore relies on several methods for estimating Mopani’s profits, using taxable profit allocation principles contained in both existing tax rules using transfer pricing methods as well as proposed alternative rules to allocate profits and tax via formulary apportionment.

The estimated profit shifting has potentially significant income tax implications, both for Mopani and for Zambia. Based on our estimates, Zambia should have been collecting up to US$102 million per year in extra in income taxes from Mopani. That is more than half of Zambia’s national water supply and sanitation budget for 2020.

To combat these risks, mining policy and international tax policy should continue to be strengthened, tax administration capacity – including mineral testing capabilities – should be enhanced, and Zambia should continue to reflect on the efficacy of certain tax treaties and tax incentives.

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Evaluation