Botswana’s transfer pricing rules have moved from a light-touch regime to one where documentation is expected to exist before BURS asks for it. For any business that transacts with a related party across a border — a parent, a subsidiary, a sister company under common control — the question is no longer whether documentation is needed, but whether what you already have would survive a review.
Who this actually applies to
The rules bite wherever connected persons transact and at least one sits outside Botswana. That covers more businesses than most directors expect. Management fees paid to a regional head office, a loan from a foreign shareholder, stock purchased from a related supplier, IT costs recharged from a parent, royalties on a group brand — all of it is a controlled transaction.
It is worth being blunt about a common misunderstanding: a transaction being commercially sensible does not make it arm’s length for tax purposes. Those are two different tests, and only one of them is documented.
What a defensible file contains
A file that holds up under scrutiny does four things. It describes the business and where value is genuinely created within the group. It identifies each controlled transaction and the parties to it. It analyses the functions performed, assets employed and risks assumed by each side. And it selects a pricing method, applies it, and shows the comparables that support the result.
The functional analysis is where most files are weakest. It is also the part BURS reads most carefully, because it is where a group either demonstrates that profit sits where the work happens, or reveals that it does not.
The mistakes we see most often
Three recur. The first is a group file written for the parent’s jurisdiction, filed in Gaborone unchanged — it describes a business that is not the one under review. The second is documentation prepared after year end to justify a price already paid, which reads exactly as what it is. The third is management fees supported by an intercompany agreement but no evidence that a service was actually rendered.
What to do about it
Establish the policy before the transactions happen, not after. Keep contemporaneous evidence that services were genuinely delivered. Refresh benchmarking rather than relying on a study prepared several years ago for different market conditions. And be realistic about whether an intercompany charge would be accepted by an unrelated party on the same terms.
If you are unsure where your group currently stands, a short review is usually enough to tell you whether you have a documentation problem or a pricing problem. They require very different responses.
This article is general guidance and not advice on any particular set of facts. If you would like to discuss your group’s position, our tax team in Gaborone will be glad to help.