Transfer pricing documentation – Soon to be compulsory?
14 January 2016
Currently, South African law does not explicitly require taxpayers to be in possession of transfer pricing documentation. Legislation does, however, place an onus on the taxpayer to prove that its cross-border related party transactions entered into are arm’s length.
This essentially means that an analysis should be conducted to prove the arm's length nature, which is usually through the drafting of a transfer pricing document. Therefore, although documentation is not legally compulsory, it is required to discharge the taxpayer's onus of proof.
The confusion is soon to be cleared up. On 15 December 2015, a Draft Notice in terms of section 29 of the Tax Administration Act 2011, was issued by the South Africa Revenue Service (SARS) setting out additional record-keeping requirements for “potentially affected transactions”.
The Draft Notice contains a comprehensive schedule of requirements indicating which records, books of account or documents taxpayers must retain relating to their cross-border related party transactions. Taxpayers who are members of a group with a consolidated South African turnover of over ZAR1 billion need to maintain all the documentation and records listed.
This would require all companies that exceed this threshold to draft comprehensive transfer pricing documentation for each member of the group. Those with a consolidated South African turnover of less than ZAR1 billion are still required to retain documentation, which can satisfy SARS that the affected transactions are being conducted at arm's length. This in essence would result in taxpayers needing to draft transfer pricing documentation even though they are below the threshold. Accordingly, we advise companies without any transfer pricing documentation to make an effort to get their affairs in order.
The Public Notice and the Schedule's full list of requirements can be found at: http://www.sars.gov.za/AllDocs/LegalDoclib/Drafts/LAPD-LPrep-Draft-2015-66%20-%20Draft%20Notice%20in%20terms%20on%20section%2029%20Tax%20Administration%20Act.pdf