Botswana income tax amendment bill
Botswana income tax amendment bill
Botswana Income Tax Amendment Bill to introduce new transfer pricing legislation
Although formal regulations are still to be promulgated, multinational enterprises operating within Botswana would have to prepare to be compliant with the new tax amendments or face significant penalties.
The following table highlights some of the significant differences between the transfer pricing requirements in South Africa and Botswana.
| South Africa | Botswana |
Applicable to both in-country and cross-border related party transactions | No, only cross-border. | Yes |
Advanced Pricing Agreements | No | Yes |
Adoption of BEPS* Action 4 (Limiting Base Erosion Involving Interest Deductions and Other Financial Payments) | No specific transfer pricing application, South Africa does have separate general interest deduction limitation legislation. | Yes |
Penalties in respect of transfer pricing transactions and non-compliance for transfer pricing documentation | Only for documentation. Normal income tax penalties would apply where transfer pricing adjustments are made. | Both transfer pricing transactions and documentation. |
Application for taxpayers | South African regulations would affect taxpayers from the 2016 or 2017 year of assessment depending on nature of the taxpayer. | Effective date is still to be determined by a ministerial notice published in the Government Gazette. |
*Base Erosion and Profit Shifting
An overview of some interesting amendments to the Income Tax Act is set out below.
- Where a new or used asset is acquired by a Botswana taxpayer from a non-resident related party and the non-resident related party acquired the asset from an independent third party, the transaction must be evidenced by tax invoice issued by the third party. In the absence of such an invoice, the value of the asset would be deemed to be zero for the calculation of any allowances that may be claimed in determining the taxable income of the Botswana taxpayer.
- The considerations as set out under BEPS Action 4 have been adopted in Botswana. Under this application, a deduction in respect of the net interest expense would be disallowed if it is in excess of 30% of the taxable income or earnings before interest, tax, depreciation and amortisation (“EBITDA”) of the Botswana taxpayer. This amendment is not applicable to companies where the main business is that of a bank or insurance provider.
Any interest disallowed in a year of assessment may be carried forward for three years. In the case of mines and mineral companies this will be extended to 10 years.
- Botswana taxpayers would be exposed to the following penalties in respect of transfer pricing:
- Where it is found that the related party transaction is fictitious or artificial in nature, the greater of an amount equal to 200% of the amount of tax that would have been avoided or an amount of P10 000 (USD 1 000) would apply.
- Where it is found that the related party transaction is not conducted on an arm’s length basis the greater of an amount equal to 200% of the amount of tax that would have been payable had the transaction been conducted at arm’s length or an amount of P10 000 (USD 1 000) would apply.
- Where the Botswana taxpayer does not comply with the transfer pricing documentary requirements in Botswana a penalty not exceeding P10 000 (USD 1 000) would apply. Should the Commissioner General request the transfer pricing documentation and the documentation is still not provided a penalty not exceeding P500 000 (USD 50 000) would apply.
For any assistance in this regard please contact one of our Transfer Pricing Specialists.
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