THE Supreme Court has compelled Mopani Copper Mines to pay the Zambia Revenue Authority more than K240 million in tax which was assessed from the year 2006 to 2009.
In a judgement delivered by Chief Justice Irene Mambilima sitting with two other Supreme Court judges Mumba Malila and Nigel Mutuna, the Supreme Court found that the mining company was liable to pay K240,891,939.89 in taxes made up of K140,891,939.89 for the charge years 2008/09 and 2009/10 and K100,000,000 for the charge years 2006/07 and 2007/08.
This is in a matter were Mopani appealed to the Supreme Court challenging the decision of the Tax Appeals Tribunal dated December 8, 2010, when it held against it on a complaint it raised, disputing tax assessments made by ZRA.
ZRA’s audit on the mining firm, established some questionable transactions between Mopani and its shareholder Glencore International AG (GIAG).
ZRA questioned some related party transaction and in particular the issue whether the said transactions were indeed at arm’s length granted GIAG’s shareholding in Mopani.
Mopani in its response to ZRA alleged that the transactions between it and GIAG were at arm’s length and that the prices for Minerals were determine by the London Metal Exchange (LME).
ZRA for the first two charge years assessed Mopani the sum of K311,113,798.38 for charge years 2006/07 and for the years 2009/10 charge years the assessment sum was K140,891,939.89.
But Mopani objected the assessment, arguing that the source of ZRA’s data informing the assessment was erroneous as all of Mopani’s sales were based on LME Copper A Grade cash settlement over a quotational period.
The mining company claimed that there was failure on the part of ZRA to take into account the Hedging Agreement that had been concluded between it (Mopani) and GIAG and implemented to minimise exposure to price risks, which was a common practice in the industry.
Mopani appealed to the Revenue Appeals tribunal arguing that the decision by ZRA to adjust its price to 50 per cent of its sales volumes was without basis and justification.
However, the tribunal dismissed the appeal and directed that the original assessment for charge years 2006/07 and 2007/08 of K311,113,798.30 would stand together with the assessment for the charge years 2008/09 and 2009/10 in the sum of K140,891,939.89.
The mining company appealed to the Supreme Court, advancing seven grounds of appeal against the Tax Appeals Tribunal.
Among the seven grounds of appeal, Mopani argued that the tribunal erred in law and fact when it ordered the mining firm to pay K311,113,798.38 as tax for the charge years 2006/07 and 2007/08.
The Supreme Court dismissed the six grounds of appeal as only one ground had succeeded.
Justice Mambilima and others questioned the basis upon which the tribunal ordered Mopani to pay K311,113,793.38 as tax for the charge years 2006/07 and 2007/08 when the parties had entered into a settlement agreement under which Mopani was to pay K100 million.
The court said it was important to bear in mind the events that animated the pretribunal appeal settlement which was done against the backdrop of disputed assessments followed by agreement in ‘a spirit of give give and take’.
“The result of the negations was the K100 million agreed settlement,” said the Supreme Court.
“We find merit in ground six of the appeal. We hold therefore that the tribunal was wrong to have ordered payment of the pre-settlement assessment figure of K311,113,798.38. The appellant is liable to pay the agreed sum of 100 million.”
It further awarded ZRA 80 percent costs for the appeal to be taxed in default of agreement.