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When is a Transfer Pricing Policy Compulsory

03 Mar 2017

Daryn BlakeMany multinational companies are engaging in intercompany transactions throughout the world in order to increase profits and to take advantage of any tax benefits that may arise.  Such transactions have raised various concerns with international Tax Authorities. The Organisation for Economic Co-operation and Development (“OECD”) published its recommendations with regards to base erosion and profit shifting (“BEPS”) and subsequently released the BEPS action plan to address all issues raised. In South Africa, the Davis Tax Committee also
released its report and recommendations regarding BEPS based on the findings of the OECD.  

The BEPS action plan is aimed at correcting the current deficiencies of the international tax system and to address the abuse of tax treaties or the weaknesses of transfer pricing rules.

During April 2016, the South African Revenue Services (“SARS”) published draft regulations which prescribes when a written transfer pricing policy is required from a taxpayer. These draft regulations were promulgated into law on 23 December 2016. The regulations will apply for years of assessment commencing on or after 1 January 2016 which means for some taxpayers, the duty to report have already commenced.  The regulations provide that certain records, books of account and documentation regarding potentially affected transactions must be retained by the taxpayer concerned.  These are namely transfer pricing transactions as defined in section 31 of the Income Tax Act No. 58 of 1962.  The regulations require that certain records and information must be kept if the taxpayer’s aggregate potentially affected transactions for the year of assessment exceeds or is reasonably expected to exceed R100 million (one hundred million Rand).   In such a case: -  

  • records in respect of the structure and operations of the taxpayer is required to be kept; and
  • further detailed information must be made available by the taxpayer, such as comparable data and methods, regarding each potentially affected transaction which exceeds or is reasonably expected to exceed R5 million (five million Rand) in value.

Increased enforcement by international tax authorities has made transfer pricing a complex issue. Should you be compelled to comply with the provisions of the Income Tax Act, Exceed and its advisors can assist you in managing your organisation’s transfer pricing risk by ensuring compliance and that the correct documentation is in place.

 

For further assistance, you are welcome to contact Daryn Blake at our Stellenbosch office on Tel. 021 882 8140

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