The transfer pricing law in Botswana has an effective date of 1 July 2019. Under the legislation, the Minister of Finance and Economic Development is required to publish transfer pricing regulations.
The Income Tax (Transfer Pricing) Regulations, 2019 were published on 12 July 2019 (which is also the effective date of the regulations).
Overview of transfer pricing regulations
The transfer pricing regulations provide a framework for enforcing the arm’s length principle, as envisaged under Section 36A of the Income Tax Act (Cap.52:01).
The transfer pricing regulations, among other items:
The transfer pricing rules currently do not provide authority to the Commissioner General to enter into legally binding advance pricing agreements (APA) with taxpayers or to issue legally binding rulings on other tax matters.
The introduction of the transfer pricing regulations is viewed by tax professionals as a significant development in the Botswana tax environment. However, some may view these rules as imposing onerous compliance obligations on taxpayer. Because benchmarking studies and the compilation of transfer pricing documentation are complex time-consuming tasks, taxpayer entities with financial years that close earlier than 30 June 2020 may face challenges in meeting the compliance obligations under the transfer pricing regulations. To avoid incurring penalties for a failure to file or late filing of transfer pricing documentation (currently, the minimum penalty is P250 000 or just over U.S. $23,000), taxpayers may want to consider making a request to the Commissioner General for an exemption from or an extension of time for filing their transfer pricing documentation for the 2020 tax year.
With the publication of transfer pricing regulations, it is expected that the tax authority (BURS) will intensify the focus on transfer pricing audits. Taxpayers with related-party transactions, therefore, need to consider reviewing their related-party transactions for compliance with the arm’s length principle and to have systems in place that will allow for compliance with transfer pricing documentation and filing obligations.
Finally, there are certain unanswered questions about the transfer pricing regulations, such as do they apply to transactions entered into before 12 July 2019?
For more information, contact a KPMG tax professional in Botswana:
Leonard Muza | +26 777 19 9067 | email@example.com
Olivia Muzvidziwa | +26 777 19 9022 | firstname.lastname@example.org
Kenneth Sakonda | +26 777 19 9079 | email@example.com
Masa Selerio | +26 777 19 9069 | firstname.lastname@example.org
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