Botswana: Review of transfer pricing rules

The transfer pricing law (effective 1 July 2019) and the transfer pricing regulations are based on the OECD Transfer Pricing Guidelines (which are cited in the legislation as a relevant source of interpretation).

The transfer pricing law requires transactions between directly or indirectly connected persons to be consistent with the arm’s length principle, and the transfer pricing rules apply to transactions with non-residents and transactions with Botswana resident IFSC-accredited related companies.

The terms “connected person” and “control” are defined in the income tax law. A transaction with a connected party is considered to be consistent with the arm’s length principle if the conditions of the transaction do not differ from the conditions that would have applied between independent persons in a comparable transaction carried out in comparable circumstances.

Transfer pricing documentation or information that taxpayers are required to submit within four months of the end of the financial year includes:

• An overview of the person’s business operations which includes, the history, recent evolution, general overview of the relevant markets of reference and an organizational chart
• Description of the group’s operational structure including general description of the role that each of the group members carries out with respect to the group’s activities, which are relevant to the controlled transaction
• A general business strategy pursued which includes business restructuring or intangible transfer in the present or immediate past year and an explanation of the effects of such transaction
• Details of the taxpayer’s key competitors
• Description of controlled transactions, including analysis of the comparability factors, etc.
• The amount of intra-group payments and receipts for each category of controlled transactions broken down by the tax jurisdiction of the foreign payer or recipient
• Copies of all material intercompany agreements
• A detailed comparability and functional analysis and the relevant connected persons with respect to each documented category of controlled transactions
• A summary of the important assumptions made in applying the transfer pricing methodology
• Comparability analysis which includes details of industry and economic analysis, budgets or projections relied on
• Any other information that may have material affect the determination of the taxpayer’s compliance with the arm’s length principle

The Commissioner General is authorized to:

• Request the taxpayer to submit the equivalent of an OECD Master file within seven days from the date of the request in cases when transactions with a connected person exceed BWP5 million
• Restate taxable income in line with the arm’s length principle

A failure to comply with the transfer pricing rules may subject a taxpayer to penalties. Further, a restatement of related-party transactions by the Commissioner General may give rise to additional value added tax (VAT), withholding tax, and other tax liabilities plus penalties and interest charges.

Read a February 2022 report [PDF 987 KB] prepared by the KPMG member firm in Botswana