ZAMBIA Law and Practice Contributed by: Mulenga Chiteba, Constance Namatai Mwango and Bwalya Milunga, Mulenga Mundashi Legal Practitioners
prises and Tax Administrations as supplemented and updated from time to time. Where there is any inconsistency between the Transfer Pricing Rules and the OECD Guidelines, the Transfer Pricing Rules prevail to the extent of the inconsist - ency. 9.2 Arm’s Length Principle Zambia’s Transfer Pricing Rules do not depart from the arm’s length principle. 9.3 Impact of the Base Erosion and Profit Shifting (BEPS) Project The OECD’s BEPS project influenced amendments to Zambia’s Transfer Pricing Rules. Zambia joined the Inclusive Framework on BEPS and in 2020 an amend - ment was introduced to bring about country-by-coun - try obligations to the domestic landscape, thereby fulfilling the country-by-country reporting minimum standard and implementing it into domestic law. It also worth noting that the BEPS-recommended transfer pricing methods have been implemented. These are as listed in 3.1 Transfer Pricing Methods . 9.4 Impact of BEPS 2.0 Zambia has not explicitly provided a conclusive per - spective on the OECD’s BEPS 2.0 initiatives. How - ever, the country continues to introduce changes to the domestic Transfer Pricing Rules to ensure they are aligned with the OECD Guidelines. Zambia’s join - ing the Inclusive Framework on BEPS in 2017 illus - trates the country’s commitment to and participation in reducing multinational tax avoidance and improving cross-border tax dispute resolution. The OECD’s BEPS 2.0 initiatives involving Pillar One and Pillar Two are likely to be implemented, even though there is no definite set period for such imple - mentation. The initiatives will likely address challenges in taxation of the digital economy in Zambia, which could lead to an increase in Zambia’s revenue growth from taxation of multinational entity digital companies, and also to tax certainty. An example of Zambia’s commitment to the OECD’s BEPS 2.0 initiatives is that while previously Zambia’s
tax legislation did not have specific rules dealing with the digital economy and digital services, as of 1 Janu - ary 2023 the government has extended the turnover tax regime to service providers in the gig econo - my, which is a segment of the digital economy that involves individuals carrying out business through an online platform and under flexible or temporary con - ditions, and that includes an independent contractor or freelancer conducting business through an online platform. This exemplifies Zambia’s commitment to unifying approaches on taxation of the digital econ - omy. For Zambia, the likely impact of the OECD’s BEPS 2.0 initiatives involving Pillar One and Pillar Two in the coming years is the growth of Zambia’s revenue gains. 9.5 Pillar One Amount B No formal domestic legislation or transfer pricing framework has been issued confirming adoption of Amount B into Zambian tax law. 9.6 Entities Bearing the Risk of Another Entity’s Operations The Transfer Pricing Rules do not provide for an entity to bear the risk of another entity’s operations. 9.7 Allocation of Profits to Permanent Establishments (PEs) Zambia’s domestic tax legislation does not contain a standalone, detailed statutory framework governing how profits must be allocated to a Permanent Estab - lishment (PE). Instead, Zambia relies on: • general principles under the Income Tax Act (Chapter 323) relating to source‑based taxation and income attributable to operations carried on in Zambia; and • transfer pricing regulations, which apply broadly to controlled transactions but do not provide a dedi - cated PE allocation methodology. While Zambia does not explicitly adopt the Author - ised OECD Approach (AOA) in domestic legislation, its definition of a PE aligns closely with the OECD Model Tax Convention. Specifically, Zambia considers a PE to arise where a non‑resident operates through a fixed place of business or provides services in Zambia for
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