International Tax and Transfer Pricing

On 28 October 2016 SARS published, in the Government Gazette, a notice under section 29 of the Tax Administration Act, No. 28 of 2011 which requires of selected multinational enterprises who enter into certain transactions to keep, what is effectively, a transfer pricing policy.

In terms of the notice, information required to be kept in respect of selected persons and transactions include:

  • Copies of any contracts or agreements related to the potentially affected transactions entered into by the person with each connected person, if such contracts or agreements were prepared in the ordinary course of business;
  • The comparable data and methods considered and used for determining the arm’s length return and the analysis performed to determine the transfer prices or the allocations of profits or losses or contributions to costs, as the case may be, in respect of the potentially affected transaction;
  • A description of the person’s ownership structure, with details of shares or ownership interest in excess of 10 per cent held by the person or therein by other persons as well as a description of all foreign connected persons with which that person is transacting and the details of the nature of the connection;
  • an organogram showing the title and location of the senior management team members;
  • the person’s market share within the industry, analysis of relevant market competition environment and key competitors;
  • Copies of existing unilateral, bilateral and multilateral advance pricing agreements and other tax rulings to which SARS is not a party and which are related to the potentially affected transactions.

While the notice does not communicate any requirement to disclose the information to SARS if not specifically called upon to do so, it has been announced on 22 February 2017 that multinational enterprises will, by 31 December 2017, be required to disclose country by country transfer pricing reports to SARS.

In the advent of international exchange of financial information and the international focus on base erosion and profit shifting, the measures taken by the SARS come as no surprise. Multinational enterprises are advised to ensure compliance with the international fiscal regulatory requirements.

Tax Consulting South Africa’s international tax team consists not only of tax experts but also of attorneys, chartered accountants and benchmarking experts who are well qualified and experienced in the idiosyncrasies associated with international tax structuring, transfer pricing and regulatory framework. Not only do we assist with ensuring compliance with the above mentioned notice but also provide valuable guidance on day to day tax implications attached to operations and which, in the current international tax climate is equally, if not more important than merely having a compliant transfer pricing policy. Gone are the days where transfer pricing policies are locked away and dusted off upon enquiry from SARS or every three years for review. A dedicated international tax task team to mitigate risks is a prerequisite for multinational enterprises who requires growth amidst the increased red tape associated with doing business across borders.