Botswana Unified Revenue Service (BURS)
Relevant Transfer Pricing (TP) regulation
TP regulations in Botswana were introduced vide specific section (section 36A) effective from 1 July 2019 onwards. These regulations are based on the Organisation for Economic Cooperation and Development (OECD) Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (OECD TPG).
Transfer Pricing Documentation
1. Local File
As per the regulations, the Local File is required to be prepared contemporaneously as it is to be filed together with the tax return on the prescribed return-filing date.
The Commissioner General on 1 September 2021 issued a blanket ruling setting a threshold for the preparation and filing of transfer pricing documentation. The ruling exempts taxpayers from preparing and filing transfer pricing documentation in cases where the “cumulative arm’s length value” of connected party transactions in a tax year do not exceed BWP 5 million (~USD 425 thousand) . The said ruling is effective retroactively from July 2019 (2020 tax year).
The threshold is referenced to the “arm’s length value” of connected party transactions. The following two-step approach is applied for determining whether the exemption applies in a given tax year to:
- Determine the aggregate of arm’s length value of connected party transactions; and
- If the aggregate value:
- Is less than BWP 5 million (~USD 425 thousand), there is no obligation to prepare and TP documentation; or
- Exceeds BWP 5 million (~USD 425 thousand), prepare and file TP documentation with the annual corporate tax return.
The local file is required to be filed together with the tax return on the prescribed return-filing date (i.e. Four months after the end of taxpayer’s financial year)
Penalty for failure
Consequences of failure to submit, late submission or incorrect disclosures would attract a penalty not exceeding BWP 500 thousand (~USD 43 thousand).
Transfer Pricing Methods
Five methods, as prescribed by the OECD, have been approved for the purpose of determining arm’s length price.
- Traditional methods:
- Comparable uncontrolled profit (CUP) method: price
- Cost-plus method (CPM): markup on costs
- Resale-price method (RPM): resale margin
- Transaction methods:
- Transaction net margin method (TNMM): net profit margin
- Transaction profit split method (PSM): operating profit and loss split
Determination of Arm’s Length Price/ Margin
The law provides that the taxpayer should undertake benchmarking analysis for each tax year. Also, with regard to comparable, the tax authority will consider comparables from the same geographic market as the controlled transaction. Where such information is not available, the tax authority may accept information from any other geographic market.
The of Multiple year data for the comparability analysis is not mandatory. However, where used, the law requires that the taxpayer justifies the use of the multiyear data.
The regulations provide for the use of the full range and not interquartile.
TP documentation is to be prepared in English.
2. Master File
In addition to above, the detailed group information (Master File), will also be required to be filed.
Master file is applicable only those taxpayers whose transactions with connected persons exceed
BWP 5 million (~USD 425 thousand).
The equivalent of the master file is only submitted to the tax authority upon request. Thus, Master File will be filed on notification from the tax authority and the due date will be stated in the notice.
Penalty for failure
For failure to submit the required documentation, a penalty not exceeding BWP 500,000 (~USD 425 thousand) will be charged.
3. Country by Country Report (CbCR)
There is no requirement to prepare a CbCR.
Prior to this ruling taxpayer were required to prepare and file transfer pricing documentation irrespective of the value of the connected party transactions which was too onerous especially in cases where the value of connected party transactions was not significant enough to warrant the cost incurred in the preparation of the transfer pricing documentation.
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