There are no concessions for group taxation, other than for wholly-owned subsidiary companies of the Botswana Development Corporation Limited (BDC).
BDC was established in 1970 to be the country's main agency for commercial and industrial development. The government of Botswana owns 100% of the issued share capital of the Corporation.
Where in any tax year a wholly owned subsidiary of BDC has incurred any assessed loss, such member may, during the current tax year, by notice in writing to the Commissioner General, elect that the whole or part of such assessed loss shall be deducted in ascertaining the chargeable income of one or more of the other wholly owned subsidiaries.
Botswana introduced transfer pricing (TP) regulations with effect from 1 July 2019. Such regulations are applicable on transactions with non-resident connected persons. TP regulations shall not apply where a person resident in Botswana engages directly or indirectly in any transaction, operation, or scheme with a connected person resident in Botswana, except where one or both of such companies are International Financial Service Centre (IFSC) companies.
All the transactions between related parties are to be recorded at arm's length. The Minister is to prescribe whether the conditions of a transaction are consistent with the arm's-length principle, and required documentation is to be kept by the parties in respect of such transaction.
Non-compliance shall have severe penalties. The penalties will be the greater of 200% of the amount of tax that would have been avoided/payable or a fine of BWP 10,000.
Further, a penalty not exceeding BWP 500,000 will be imposed on failure to furnish the Commissioner with the TP documentation.
Rules relating to thin capitalisation were amended with effect from 1 July 2019. The maximum net interest expense claimable by a company (except for a variable rate loan stock company, a micro, small, or medium enterprise, or a bank and an insurance company) is 30% of the taxable income or earnings before interest, tax, depreciation, and amortisation (EBITDA).
Disallowed interest, if any, is to be carried forward and claimed in three years. In respect of mining companies, such denied interest is to be carried forward and claimed in ten years.
In addition to the above, in case of an IFSC company, where an amount of foreign debt interest is allowable as a deduction in a particular tax year and, at any time during that tax year, the total foreign debt exceeds the foreign equity product for that year, then the amount of foreign debt interest ascertained in accordance with the following formula will be disallowed:
I x (A/B) x (C/365)
A = Amount of the excess of the total foreign debt over the foreign equity product.
B = The total foreign debt.
C = The number of days in that tax year during which the total foreign debt exceeded the foreign equity product by that amount.
I = The foreign debt interest.
Controlled foreign companies (CFCs)
There are no CFC rules in Botswana.