Transfer Pricing in Botswana

The legal framework

Botswana did not amend its transfer pricing rule in 2026 — it replaced the statute that housed it. The Income Tax Act, 2026 (Act No. 13 of 2026) was assented on 29 June 2026 and commenced on 1 July 2026 under S.I. No. 93 of 2026; section 143 repeals the Income Tax Act, Cap. 52:01 outright. Transfer pricing now sits at section 117, inside Part VI, "Countering Tax Avoidance", beside income splitting (s. 116), the general anti-avoidance rule (s. 118) and a new low-tax-entity attribution rule (s. 119). Procedure has moved wholesale to the Tax Administration Act, 2026 (Act No. 14 of 2026), which commenced the same day.

That placement is not cosmetic. Section 100(4) makes a treaty prevail over the Act where the two conflict, but expressly excludes Part VI — so Botswana asserts that its transfer pricing and anti-avoidance rules apply notwithstanding treaty terms. Section 117(1)–(2) states a familiar standard in purely domestic language: conditions between associates must not differ from those independent persons would apply in comparable transactions carried out in comparable circumstances. Section 117(3) lets the Commissioner General adjust income, deductions, gains, losses and credits to an arm's length result, but section 117(4) sends both the test of consistency and the quantum of any adjustment to regulations.

Those regulations exist, and almost every operative rule is in them rather than in section 117. The Income Tax (Transfer Pricing) Regulations, 2026 were published as S.I. No. 89 of 2026 in Extraordinary Gazette Vol. LXIV No. 77 of 30 June 2026 and came into operation with the Act on 1 July 2026 — commentary citing "S.I. 189 of 2026" has the number wrong. Scope is one of the things they settle. Regulation 3 disapplies section 117 where a person resident in Botswana transacts with a resident associate, except where one of the associates is subject to a concessionary tax regime or the transaction involves a foreign permanent establishment of one or both. The domestic carve-out practitioners assumed had died with section 36A therefore survives — in narrower form, because a domestic pair with a foreign branch in the picture is back in scope, as is any dealing with an IFSC or otherwise concessionally taxed Botswana entity.

Methods, comparables and benchmarking

Methods are prescribed, and prescribed with a hierarchy — in the regulations, not the Act. Regulation 6(5) approves five: comparable uncontrolled price, resale price, cost plus, transactional net margin and profit split. Regulation 6(6) classifies the first three as traditional and the last two as transactional. Where two or more methods apply with equal reliability, regulation 6(8) makes CUP govern, and regulation 6(9) prefers a traditional method to a transactional one; a method outside the list may be used only where the Commissioner General is satisfied under regulation 6(11). Regulation 18 lets the Commissioner General use the OECD Transfer Pricing Guidelines as a relevant source of interpretation, so the 2019 position on the Guidelines survives — again in the subordinate instrument, since section 117 says nothing about methods or the Guidelines at all.

The range rule is protective rather than punitive, and it is routinely mis-stated. Regulation 8(1) provides that a controlled transaction shall not be subject to a section 117 adjustment where the relevant financial indicator is within the arm's length range. Only a result outside the range can be adjusted, and then the adjustment is to the median (reg. 8(2)) — the median being the 50th percentile, with an arithmetic-mean tie-break where exactly 50% of results sit at or below a figure (reg. 8(3)–(4)). The median is where an adjustment lands, not the point a compliant taxpayer has to hit; a result anywhere inside the range is expressly protected.

Comparables now come with a prescribed geographic hierarchy. An uncontrolled transaction from another geographic market may be accepted only in the absence of information from the same market as the controlled transaction (reg. 9(4)); its reliability is judged case by case (reg. 9(5)); and a taxpayer relying on one must assess the expected impact of geographic differences and other factors on price and profitability (reg. 9(6)). Regulations 9(2)–(3) stop either side relying on comparables the other cannot see. Since there is still no Botswana comparables database and the domestic company population is far too small to support a local search, regional or pan-African sets anchored on South African data remain the practical answer — but the file must now document the failure of the local market and quantify the geographic adjustment, not simply assert a regional strategy. Tested-party selection is prescribed too: required for cost plus, resale price and TNMM (reg. 6(12)), consistent with the functional analysis (reg. 6(13)), explained in the documentation (reg. 14(3)(m)) — and a tested party outside Botswana is expressly contemplated, provided its financial statements are produced (reg. 14(3)(n)).

Documentation: what BURS expects

Section 117(5) is one line: a person in a controlled transaction must keep "the required documentation as may be prescribed". Regulation 14 supplies the rest, and it does not follow the OECD's two-file architecture. There is no local file and no master file — one documentation set, listed at regulation 14(3)(a) to (z), 26 categories running from the MNE group's legal and ownership chart, its business description and profit drivers, the supply chain for the five largest products or services and a functional analysis of value creation, through the controlled transactions, comparability factors, intra-group agreements, method selection and justification, to the tested party and the financial statements of the parties. Regulation 14(4) exempts a person whose transactions in a tax year with an associate within an MNE group do not exceed BWP 5 million — the 2019 threshold carried forward, but now in the instrument itself rather than resting on a Commissioner General's ruling.

The deadline is the detail most commentary still gets wrong. Under the 2019 regime the local file was lodged with the corporate return. Regulation 14(2) now requires the documentation to be submitted within six months after the tax return due date, and the return is itself due four months after financial year end under section 123(1)(a) — roughly ten months after year end for a company. Regulation 14(3) still describes documentation "submitted with a tax return as provided for under subregulation (2)", which is an internal inconsistency in the drafting; the operative time limit is in regulation 14(2). Separately, regulation 16 lets the Commissioner General demand documentation by written notice at a stated time and place, and that power is what replaces the old master-file-on-request mechanic.

Three obligations sit outside the transfer pricing regulations altogether and bite regardless. Records must be kept in Botswana, in English or Setswana, and in Pula unless a tax law permits another functional currency, with translation at the taxpayer's expense on notice (TAA s. 14). They must be retained for eight years, longer where an audit, an unused assessed loss or an open amendment period extends the period. And section 122 disallows expenditure the taxpayer cannot, without reasonable excuse, document. Section 117(6) sharpens the point: an asset acquired from a non-resident associate that the associate had bought from a third party is treated as having a nil purchase price unless the third party's invoice to the associate is produced. That is denial of the entire cost base, not a pricing adjustment.

Audits, penalties and the enforcement climate

Botswana's penalty numbers are severe and now sit in one statute. A false or misleading statement producing a shortfall costs 75% of it where deliberate or reckless and 20% otherwise (TAA s. 103(3)), rising by 10 percentage points on a second application and 25 on a third or subsequent (s. 103(4)). That is also the one penalty beyond relief: section 110(6) lets the Commissioner General waive any penalty other than one payable under section 103. Where the Commissioner General applies an avoidance provision in assessing, the penalty is 200% of the tax avoided; evasion draws 300% (s. 105). Failure to keep records without reasonable cause attracts the same 75%/20% scale with a fixed floor of BWP 10,000 for a company, and section 122 failures carry up to BWP 500,000.

There is no documentation safe harbour. The functional shield is section 103(5)–(8): no shortfall penalty where the self-assessment position was "reasonably arguable", and a halving of the penalty where the taxpayer discloses before BURS notifies a discovery or before an audit begins — an audit beginning at the end of the first interview or when an officer inspects records with the taxpayer's knowledge. That timing rule rewards moving early on a known pricing weakness. A position contrary to a public or private ruling is not reasonably arguable unless the ruling is shown to be wrong. Exposure also runs longer: assessments may be amended within eight years of lodgement or service, and at any time for fraud or wilful neglect, against four years under the old Act. BURS's 2024–2029 Strategic Plan targets a quarter of a BWP 120 billion revenue goal from risk-based audit, and mandatory e-invoicing from about April 2027 will hand it transaction-level data on related-party charges.

Dispute resolution and advance certainty

The dispute path is statutory and pay-to-play. An objection goes to the Commissioner General within 60 days of service of the decision, and is valid only if it states grounds, the amendments sought and reasons, and the taxpayer has lodged the return, paid the undisputed tax and paid one third of the disputed tax or given security (TAA ss. 27–28). Six months without an objection decision entitles the taxpayer to treat it as disallowed and move on. Appeal lies to the new Tax Tribunal (ss. 83–90), which replaces the Board of Adjudicators, and from there to the High Court within 45 days — on a question of law, a mixed question, or fact where the tax in dispute exceeds a prescribed amount — on payment of a further third, with the burden of showing the decision wrong resting on the taxpayer. Budget the cash: a large primary adjustment demands two thirds of the disputed tax before the merits are argued.

Advance certainty is thin. Section 117(7)(b) empowers the Minister to provide for advance pricing agreements, but S.I. No. 89 of 2026 creates no APA procedure, form or fee, and the equivalent power under the old Act was never used. In their absence the realistic instrument is the new rulings regime — public rulings (ss. 63–65) and binding private rulings (ss. 66–69). Mutual agreement procedure is available only through Botswana's 19 bilateral treaties, with no domestic MAP statute or published BURS guidance, and no reported Botswana transfer pricing judgment could be located.

Pillar Two and what changed in 2026

Read the 2026 package as a whole and the transfer pricing consequences widen. The company rate rose to 24.5% from 1 July 2026; withholding runs at 10% on dividends and 15% on interest, royalties and technical fees, with a new 10% charge on a permanent establishment's repatriated profit. Section 36 caps interest deductions at interest income plus 30% of tax EBITDA, with a five-year carryforward of denied interest, while section 90 retains a 2:1 thin capitalisation rule for foreign-controlled mining and petroleum licensees. Section 119 introduces Botswana's first CFC-style rule, attributing the investment income of foreign entities with a sub-15% effective rate to residents holding 50% or more — summaries still stating that Botswana has no CFC rules are out of date. Section 98 deems a non-resident associate that recharges technical service or equipment costs to be the supplier, pulling the recharge into withholding tax.

On Pillar Two, treat the headlines with care. Section 142(1)(f) empowers the Minister to make regulations introducing a domestic minimum top-up tax consistent with the GloBE rules; no such regulations, rate or revenue threshold could be located in August 2026. Pillar Two in Botswana is enabled, not enacted, whatever some professional summaries say. Amount B is comparable: Botswana appears on the OECD's June 2024 list of covered jurisdictions, so other Inclusive Framework members commit to respect an Amount B outcome it applies, but nothing in domestic law — neither section 117 nor S.I. No. 89 of 2026 — adopts the simplified and streamlined approach.

How practitioners should respond

Three things follow. First, work from the regulations rather than the commentary. The Income Tax (Transfer Pricing) Regulations, 2026 are S.I. No. 89 of 2026, gazetted on 30 June 2026 in Extraordinary Gazette Vol. LXIV No. 77, Supplement C, and in operation from 1 July 2026; there is no S.I. 189 of 2026. Material still describing a local file lodged with the return, a separate master file produced on request, or the BWP 5 million threshold as a Commissioner General's concession is describing repealed law — and a 2026-year file built on it will mis-state both the deadline and the group content requirements.

Second, run two regimes in parallel: section 144(a) preserves the repealed Act for pre-July-2026 years, and with an eight-year amendment window those years stay live, governed by section 36A and the 2019 regulations with their BWP 500,000 documentation penalty, not mitigable below BWP 250,000. The old and new documentation architectures, deadlines and penalty scales all differ, so date-stamp every position.

Third, scope is settled — but not where anyone was looking for it. Section 117 carries no residence carve-out on its face; regulation 3 supplies one, disapplying the section between two Botswana residents unless one is subject to a concessionary tax regime or the transaction involves a foreign permanent establishment of one or both. Ordinary domestic management charges and intra-group funding between two fully taxed Botswana companies are therefore outside section 117; the same flows come back in the moment an IFSC company, another concessionally taxed entity or a foreign branch sits on either side. That foreign-PE limb is new — repealed section 36A had nothing like it — and it will catch groups running a Botswana entity with an operation across the border. Finally, verify against the BURS "Tax Laws 2026" page and the gazette alone: the Cap. 52:01 consolidation still hosted under Revenue Laws predates the 2018 amendments and contains no transfer pricing provisions at all.