External Consequences of Transfer Pricing: Zambia's Copper Export

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External Consequences of Transfer Pricing: Zambia's Copper Export
Anneke Zwart, Student (University), Netherlands

Zambia is a country that is very rich in copper, but nevertheless it is also one of the poorest countries in the world. This paradox is mainly a result of transfer pricing by multinational corporations that own most of the copper mines in Zambia. The government of Zambia has estimated that they annually lose 2 billion dollar as a result, which actually comprises 10 percent of GDP. Although the price of copper has been risen largely between 2001 and 2007, Zambia has not seen any profit tax revenue increase. Foreign investors seem to make huge profits but they fail to pay their fair share.

Zambian authorities have accused commodity giant Glencore and First Quantum, which own Mopani (one of the largest mining corporations in Zambia) for using various techniques so as to evade taxation by using its tax haven in Rüschlikon.
Multinationals such as Glencore and First Quantum transfer profits from the high-tax countries in which the profits are mainly produced into tax havens where profits are not taxed properly or not at all. In the case of copper in Zambia, the copper is not traded on the open market; rather it is traded internally within the same multinationals including Glencore and First Quantum. The trade between their subsidiaries enables the multinationals to artificially manipulate prices for accounting purposes so that the subsidiaries can purchase something cheap and sell it at an expensive price. This creates large profits that won’t be taxed in the tax haven.

Transfer pricing is a technique that has damaged many African countries such as Zambia extremely. Ramond Baker, Director of Global Financial Integrity, highlights the concerns of such practices. He says that the amount of money flowing out of developing countries is ten times bigger than the amount of foreign aid flowing into developing countries.
Source: Guldbrandsen, C. (2012) “Stealing Africa” Japan



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