This article examines the latest developments and the implications for businesses with operations, investments or financing arrangements spanning both jurisdictions.
SARS is investing heavily in technology to identify tax risk more quickly and accurately. During the 2024/25 financial year, it completed approximately 1.7 million verification cases, raising ZAR95 billion, while 3,757 specialised audits resulted in a further ZAR46 billion in assessments. Appeals involving amounts exceeding ZAR1 million also increased by 12%, reflecting a growing focus on larger and more complex matters.
Businesses with cross-border operations are already seeing the change. Cross-border financing arrangements, transfer pricing policies and supporting documentation are coming under closer scrutiny as SARS makes greater use of data to test whether information is consistent across tax returns, supporting documentation and other reporting obligations.
This is being supported by greater access to information. During the same period, SARS received 775 Common Reporting Standard packages and 712 country-by-country reporting packages, giving it significantly greater visibility of offshore structures and cross-border transactions.
SARS has also introduced AI-driven data matching through its Smart Modernisation programme, allowing tax returns to be compared against bank records, payroll information, VAT submissions, asset registries and other third-party data. Inconsistencies that may previously have gone unnoticed are now far more likely to be identified.
Transfer pricing: audits, Advance Pricing Agreements and recent case law
Transfer pricing continues to attract significant attention from SARS and remains one of the most actively scrutinised areas of cross-border taxation. According to KPMG’s 2026 pre-Budget commentary, SARS has expanded its specialist transfer pricing audit teams and analytics capability, resulting in more frequent audits and increasingly complex transfer pricing adjustments.
Current areas of focus include intellectual property and intangible assets, intercompany loans and guarantees, management fees, shared service arrangements, and business restructurings involving the transfer of functions, assets or risks. These are all common features of cross-border group structures between Botswana and South Africa.
One of the more notable developments is SARS’ pilot bilateral Advance Pricing Agreement (APA) programme. Aligned with OECD practice, the programme gives multinational groups the opportunity to obtain greater certainty on complex transfer pricing arrangements before disputes arise. Businesses reviewing or restructuring intercompany financing or service arrangements should consider whether an APA may provide greater certainty.
Recent case law has also provided useful guidance. In ABD Limited v Commissioner, SARS (2024), the Tax Court handed down South Africa’s first substantive transfer pricing judgment, finding in favour of the taxpayer and accepting a 1% royalty rate supported by comparable evidence. The decision reinforces the importance of well-supported transfer pricing documentation and demonstrates that appropriately evidenced pricing methodologies can withstand scrutiny.
Botswana introduced transfer pricing legislation aligned with the OECD Guidelines in 2019 and already provides for domestic Advance Pricing Agreements. This presents an opportunity for businesses with operations in both jurisdictions to consider obtaining greater certainty on both sides of the border.
Global Minimum Tax (Pillar Two)
South Africa has now fully operationalised its Pillar Two regime. The Global Minimum Tax Act and Global Minimum Tax Administration Act (both 2024) apply to fiscal years from 1 January 2024, targeting multinational groups with consolidated revenue above EUR750 million, and require a GloBE Information Return with SARS and a 15% minimum effective tax rate across all jurisdictions of operation.
SARS’s registration and notification functionality went live in March 2026, with the first notifications and GIRs due by 30 April and 30 June 2026 respectively (many deadlines were extended to those dates). While CBH may sit below the EUR750 million threshold today, this is worth confirming explicitly and monitoring, since penalties for non-compliance range from R50,000 to R150,000 and record-keeping obligations extend to seven years.
Botswana’s proposed tax reforms deserve immediate attention
Botswana’s proposed tax reforms could have a significant impact on businesses operating across the region. The 2026 Budget proposes a shift from source-based to residence-based taxation, meaning Botswana tax residents would, for the first time, be taxed on their worldwide income. For businesses with offshore earnings or South African operations, this represents a significant change.
The proposed reforms also include an increase in the corporate tax rate from 22% to between 24.5% and 25%, interest deduction limitations of 30% of tax-adjusted EBITDA, a five-year cap on assessed losses and mandatory electronic invoicing from April 2026.
Businesses should also note the proposed introduction of a 10% withholding tax on branch profit repatriations and a 15% withholding tax on certain payments to non-residents relating to natural resource rights. Existing financing arrangements, royalty structures and profit repatriation models should be reviewed to determine whether these changes could affect the commercial viability of current cross-border structures.
Permanent establishment risk in South Africa
South Africa does not tax non-residents simply because they have a permanent establishment (PE). Instead, tax is levied on South African-sourced income, with PE principles used primarily to determine where income is sourced and how it should be attributed. Businesses with operations in South Africa should nevertheless review whether warehousing, distribution, agency or other on-the-ground activities remain preparatory or auxiliary in nature. The same applies where contracts are negotiated or substantially concluded in South Africa, even if they are formally signed elsewhere.
While South Africa has reserved its position on certain OECD anti-avoidance measures relating to permanent establishments, it has adopted the revised “specific activities” test. Businesses that have relied on historic interpretations of what constitutes preparatory or auxiliary activities should consider whether those assumptions remain valid.
Time to put existing structures to the test
The developments outlined above provide a timely opportunity to reassess existing cross-border structures. Financing arrangements, guarantees and management fee structures should be supported by contemporaneous transfer pricing documentation that can withstand regulatory scrutiny.
Businesses should also consider how Botswana’s proposed residence-based tax regime and new withholding tax measures could affect existing financing and profit repatriation structures. Operations in South Africa, including warehousing, sales activities and local decision-making, should be reviewed to determine whether they could create permanent establishment exposure.
Finally, multinational groups should confirm whether they fall within the scope of the Global Minimum Tax (Pillar Two) rules, both under their current structure and as part of future growth plans.
This article first appeared in Mondaq publication.
