A Rose by any other name – how do SA TP rules stack up against the global norm

Although South Africans don’t always have electricity, the SA TP documentation requirements, are strict, harsh and you can be sure, there will be NO interruptions to SARS requesting them from the required taxpayers. The TP warning lights are staying on!

A reminder of basic TP compliance rules

Like much of the rest of the world, South Africa has committed itself to follow the transfer pricing documentation requirements in line with the three-tiered approach as suggested by the OECD.

SA has adopted certain minimum standards proposed under the OECD’s Base Erosion and Profit Shifting (BEPS) recommendations, most notably the documentary requirements proposed by the OECD in BEPS Action 13.

Mandatory filing of a BEPS Action 13 compliant master file and local file for a particular year is required by taxpayers that have aggregated cross-border related party transactions exceeding or reasonably expected to exceed ZAR100 million for that year. If this threshold is met, a master file and local file should be prepared and filed with SARS together with the ITR14. The mandatory filing (submission)?has long been in place, becoming?effective for years of assessment commencing on or after 1 October 2016.

In South Africa,?when determining whether the ZAR100 million mandatory filing threshold has been met, besides the?arm’s length value?of the?usual cross-border related party transactions (for example sales, purchases, service fees?and?royalties?and interest), regard must also be given to balance sheet items including (but not limited to) the capital balances of loans, long-outstanding trade balances that could be construed to be financial assistance, and certain types of dividends paid or received.

A taxpayer meeting the threshold must also prepare and retain certain TP-related documentation. There are specific additional documentation requirements set out for individual cross-border related party transactions exceeding, or reasonably expected to exceed, ZAR5 million.

Furthermore, taxpayers that do not meet the ZAR100 million threshold?must still be?able to support their cross-border related party transactions with a “Simplified” TP Local File. There is also CBYC, but enough jargon for today.

SA compared to the global norm:

Transfer pricing documentation

1. Local TP Files
2. Masterfile
3. Penalties
4. Disclosure requirements and declarations
5. Thresholds for compliance

South Africa

1. Typically, it must be submitted to SARS annually
2. Typically, it must be prepared and submitted locally
3. TP primary adjustments and secondary adjustments plus penalties
4. Comprehensive disclosure requirements
5. Low and consolidated (and single) transaction-based

Discussion and general?global perspective

1. Typically, must be retained annually and submitted upon the requirement
2. Typically, prepared at the Group level and retained
3. Typically, penalties and primary adjustments. Country specific.
4. Low to comprehensive disclosure requirements and/or specific TP declarations
5. Typically, higher thresholds are based on revenue (and further transactional thresholds in many jurisdictions)

What’s the point?

Whilst South Africa broadly follows the OECD guidelines, SA TP rules include additional considerations including relatively low thresholds, disclosure, and submission requirements that go above and beyond what is required in other Jurisdictions.?The specific local SA TP rules are in fact more stringent than many other jurisdictions on earth! So, entities relying on Group prepared documents should beware and be aware?that they need to be tailored for SA-specific legislative requirements.

Do we care?

Transfer pricing is arguably the most relevant and challenging topic in international tax.?Always remember, being proactive pays off, and prevention is always better than cure. Should you require assistance in being proactive,?contact ?any one of our specialists TP consultants within RvR, which could eliminate cumbersome penalties or litigation thereby enabling you to focus on your business objectives.