Effective 1 July 2019, transfer pricing rules have been introduced in Botswana vide the Finance Act 2019. The regulations reference the OECD Guidelines for the purpose of interpretation of the transfer pricing provisions.

Section 36A of the Act provides that any financial or commercial transactions entered into by resident enterprises with non-resident related parties must be at arm’s length. The term ‘arm’s length’ is defined as the conditions which would have been agreed between unrelated parties with respect to similar transactions in similar conditions. Failing that, the tax authorities are empowered to readjust the price of the transaction in order to reflect the arm’s length price, which is determined on the basis of the median of the arm’s length range and corresponding adjustments may also be made where certain conditions are met.

Definition of Related Parties

The tax law defines a related party as an enterprise that participates directly or indirectly in the management, control, and capital of another enterprise.

Applicable TP Methods

The following TP methods are applicable to the transactions between related parties:

Comparable uncontrolled price (CUP) method
Resale price method
Cost plus method
TNMM
Profit split method
Other methods provided such method provides results consistent with the regulations and none of the standard five methods can be reasonably applied.

The CUP method is preferred, and where both a traditional and transactional method provides equally reliable results, the traditional method should be used. The tax authority may not override the transfer pricing method selected by the taxpayer, as long as it is consistent with the regulations.

Use and Availability of Comparable

Taxpayers may use external comparables if they are easily available to both the taxpayer and the tax authority. Comparables from other geographic markets may also be used. Further, the tax authorities are barred from using secret comparables.

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