One of the first questions that usually come up in relation to local transfer pricing requirements is along the lines of: Is transfer pricing documentation compulsory and if so what should the documentation consist of?
From a South African perspective, many transfer pricing professionals will tell you that the law doesn’t require you to have transfer pricing documentation per se. Rather there is a requirement by the taxpayer, or to put it in other words, the onus is on the taxpayer to discharge her/his onus that cross border related party transactions are arm’s length. In most instances this will mean that some sort of exercise/study is required and the best way to do this is generally through a transfer pricing document. But again, such document is not legally required. It is a bit of an odd one and has caused some confusion in South Africa. But no more –
As of 15 December 2015, SARS issued a draft notice (Draft Notice) in terms of section 29 of the Tax Administration Act, 2011. The Draft Notice sets out additional record-keeping requirements for “potentially affected transactions” where the taxpayer has a “consolidated South African turnover” of R1 billion (approx. US$64 million) and above. Affected transaction is more or less defined as a cross border related party transaction (including schemes and other arrangements). The Draft Notice contains a schedule which requires that the person (taxpayer) who falls within the definition (i.e. above the R1 billion) must keep and retain certain records, books of accounts or documents as listed in the schedule. If you are below this threshold you are back in the above grey world of where documentation is somewhat required, but at least there is no detailed schedule that the taxpayer must adhere to.
The Draft Notice can be found on SARS’ website and I will not discuss the list further here, but note, it is quite detailed and requires a lot of information. If you have any questions in relation to specific info please let me know. Also be aware that comments in relation to the Draft Notice will have to be submitted to SARS by the 5th of February. If you have any comments you would like me to add to mine, please let me know before then too.
One interesting question that I believe most of the comments are going to be about is the wording around the consolidation: “a member of a group with a consolidated South African turnover of R1 billion and above.” The basis for the consolidation is not really clear. Is it only South African entities and subsidiaries, or does it include some of the turnover of offshore/cross border parent companies as well?