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Botswana: Transfer pricing and thin capitalisation legislation proposed

Botswana: Transfer pricing and thin capitalisation

The parliament on 12 December 2018 passed a bill that would amend the income tax law (Income Tax Act (Cap. 52:01)) to introduce transfer pricing and thin capitalisation measures in Botswana’s tax law.

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The bill would:

  • Introduce transfer pricing legislation based on the arm’s length principle
  • Authorise the promulgation of transfer pricing regulations
  • Introduce thin capitalisation rules that would limit the deduction of certain interest expenditures
  • Implement a political commitment made by government in 2017 to eliminate the potentially harmful features of the Botswana International Financial Services Centre (IFSC) regime by December 2018, by amending the definition of an IFSC company and the definition of approved financial services

The bill was gazetted on 7 December 2018, and following approval by the parliament yesterday, the next step in the legislative process would be presidential assent. Following this, the measures would be expected to be effective from the date when notified by a ministerial notice published in the government gazette. 

KPMG observation

Until now, the Botswana Unified Revenue Service (BURS) has been conducting transfer pricing audits under the general anti-avoidance provisions of the income tax law.  The proposed legislative amendments reflect a more formalised focus on transfer pricing. Therefore, tax professionals anticipate an intensified focus on transfer pricing audits and an increase in taxpayer disclosure and transfer pricing documentation requirements. 

Also, in light of these developments, taxpayers need to consider evaluating their funding structures in anticipation of the implementation of thin capitalisation rules. 

Taxpayers that are accredited with the IFSC need to be aware of the fact that operations involving the exploitation of intellectual property and/or the development and supply of computer software for use in the provision of approved operations may no longer constitute approved financial services. 

 

For more information, contact a KPMG tax professional in Botswana:

Olivia Muzvidziwa | +267 3912 400 | olivia.muzvidziwa@kpmg.bw

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