TRANSFER PRICING BASICS IN BOTSWANA
As Botswana continues to attract multinational businesses and cross-border investments, Transfer Pricing has become one of the most important areas of tax compliance.
It determines how profits are allocated between related companies operating across different countries and ensures that each tax authority receives its fair share of revenue.
What is Transfer Pricing (TP)?
In simple terms, Transfer Pricing refers to the pricing of goods, services, intangibles, or financing arrangements between related parties such as subsidiaries, branches, or sister companies.
In Botswana, TP is governed by Section 36A of the Income Tax (Amendment) Act, which came into effect on 1 July 2019, and is supported by detailed Transfer Pricing Regulations.
The foundation of TP is the Arm’s Length Principle, which requires that transactions between related parties be conducted under the same terms and conditions as those between independent parties.
Although Botswana is not a member of the OECD, its TP framework is largely guided by the OECD Transfer Pricing Guidelines.
Why does Transfer Pricing matter?
BURS introduced TP regulations to align with the OECD/G20 Base Erosion and Profit Shifting (BEPS) initiative, a global effort to ensure that profits are taxed where value is created.
These measures prevent artificial profit shifting from Botswana to low-tax jurisdictions and protect the national tax base. Transfer Pricing compliance helps promote fair taxation, strengthens government revenue, and contributes to Botswana’s long-term economic growth.
How does it affect Botswana businesses?
Transfer Pricing applies to resident businesses that transact with related non-resident entities, where the total transaction value reaches or exceeds P5 million in a tax year.
Businesses must maintain detailed TP documentation, including:
- A Master File, containing group-level information about the global business operations and pricing policies.
- A Local File, focusing on the Botswana entity’s specific transactions, pricing methods, and comparables used.
These documents must be available at the time of filing the annual Income Tax return and submitted when requested by BURS. Proper documentation demonstrates that transactions are conducted at arm’s length and reduces the risk of income adjustments or disputes.
What can businesses do to stay compliant?
Businesses can take several practical steps to manage Transfer Pricing effectively:
- Apply the Arm’s Length Principle consistently across all related party transactions.
- Keep accurate and up-to-date documentation for all intra-group dealings.
- Use appropriate TP methods such as the Comparable Uncontrolled Price (CUP) Method, Resale Price Method, or Transactional Net Margin Method (TNMM).
- Formalize intercompany contracts to clearly define the nature and value of services or goods exchanged.
- Engage professional advisors for guidance on TP documentation and compliance reviews.
Non-compliance can result in penalties of up to P500,000 and potential adjustments to taxable income. Staying compliant helps avoid costly tax disputes and builds trust with the tax authorities.
Transfer Pricing is more than a technical tax rule, it reflects how responsibly businesses operate within the global economy. By observing the Arm’s Length Principle, keeping proper documentation, and maintaining transparency, Botswana businesses can demonstrate good governance, support national development, and strengthen investor confidence in the country’s tax system.
If your business engages in cross-border transactions or related party dealings, now is the time to review your Transfer Pricing compliance. Reach out to us for guidance on documentation, method selection, and meeting BURS requirements. Staying proactive today can help you avoid challenges tomorrow.
