Most Read Contributor in South Africa, September 2016
On 15 December 2015, SARS issued a draft Public Notice that sets
out the additional record-keeping requirements for transfer pricing
It proposes extensive and comprehensive documentation
requirements that must now be kept by taxpayers with a consolidated
South African turnover of R1 billion or more.
Although this provides South African taxpayers with clarity on
the information that must be retained for transfer pricing
purposes, these requirements are fairly onerous and will increase
the compliance burden of these taxpayers, resulting in additional
The notice introduces the new term of "potentially affected
transactions" which refers to all cross border transactions
with the connected persons as listed in section 31, regardless of
whether the terms and conditions of such transaction are different
from the terms and conditions of an arm's length
transaction. In other words, where the focus on preparing a
transfer pricing policy is only on those transactions that are
not at arm's length, the transfer pricing documentation must
now deal with all such connected party cross-border
Despite the need for clarity from SARS on the extent of the
transfer pricing documentation that must be retained by taxpayers
in South Africa, these proposed record keeping requirements for
multinationals will require detailed information which may not
be relevant for tax purposes.
Some of the more onerous (and interesting) information to be
A business operation summary which includes, inter
alia, the key value drivers supported by independent industry
research findings or reports. This can be problematic where
industry research findings or reports may not exist for certain
For a non-resident tested party, all contracts and invoices
with customers and suppliers as well as segmented financial
information per potential affected transaction.
For tested parties, a detailed allocation of revenues, costs,
expenses and profits between its connected person transactions and
independent person transactions.
Detailed information for affected transactions that relate to
A summary of financial forecasts that are contemporaneous with
the financial assistance transactions in question, but only as far
as is meaningful in relation to the period of the funding
transactions, indicating the expected levels of interest cover,
gearing or other relevant measures over the forecast period.
Any other information, data or document which may be relevant
in the determination of an arm's length return under section
31(2), including data relating to a connected person.
Taxpayers with a South African turnover which does not exceed
the R1 billion
threshold must also
retain records to support any cross-border related-party
transaction. In the absence of any indication of what these
"records" should include, it seems that these
taxpayers should ensure that they have a transfer pricing policy
that meets the requirement as set out by the OECD.
It is interesting that the Draft Notice makes no reference to
the Master File and Local File transfer pricing documentation
approach as recommended by the OECD under the BEPS Action 13.
Although we appreciate SARS' need for information which will
allow it to properly assess the transfer pricing risks of
taxpayers, SARS has not aligned itself with the
recommendations of the OECD under Action 13.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The expansion of the West African regional market to foreign investors, and the search for emerging markets has led to a continuous increase in business mobility and cross border investments with Nigeria.
Effective collaboration amongst government agencies, automation of processes and capacity building by tax authorities have always been identified by stakeholders as strategies for achieving an efficient tax system.
The major objective of the waiver is to promote voluntary compliance and consequently generate revenue for government which otherwise, could have been lost.
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