Practical aspects on transfer pricing

Transfer pricing and the inherent arm’s length principle has been around for some time now and many African countries have implemented transfer pricing regulations. In Africa, only about five countries had transfer pricing legislation in place before 2000, now in 2019, only about five countries do not have any arm’s length or anti-avoidance provisions in place dealing with transfer pricing. Out of these countries approximately 40 countries in Africa have some sort of formal transfer pricing documentation requirements, be it in the form of formal submission or retention requirements. 

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Changes to the South African tax return

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Previous TP disclosure requirements in the ITR14 have been expanded

SARS has introduced further changes and enhancements to its ITR14 return on 18 April 2016. Additional sections, questions, items and certain automatic calculations have been added throughout the ITR14. A full analysis of these changes can be found here, but I wanted to highlight the additional transfer pricing disclosure requirements.
The previous transfer pricing disclosure requirements in the ITR14 have been expanded to request details of the number of tax jurisdictions, countries and value per country in relation to related party income received/accrued or expenditure incurred. Furthermore, the amended ITR14 introduced additional transfer pricing questions to determine if the taxpayer:

  • Has made any changes to its transfer pricing policy since the previous reporting period including a change in its classification
  • Is transacting with a tax jurisdiction that does not have a tax treaty with South Africa
  • Selected a tested party which is not tax resident in South Africa
  • On or after 1990, transfer, alienate or disposed of intellectual property to any non-resident connected party or branch of a South African resident

Lastly, the new ITR14 also requests an additional financial ratio.

The new transfer pricing disclosure requirements as of 18 April, incorporating previous and new requirements,  will assist SARS greatly in creating risk profiles for taxpayers and send additional information request to those, which are deemed to be higher risk. Please let me know your thoughts, and if you would like to discuss your specific case in a more private environment, please feel free to reach out to me here as well.