New developments in terms of the Tax Administration Act 2011 now require certain entities to keep transfer pricing documentation for submission to the South African Revenue Service (SARS). SARS has now finalised the previously discussed draft notice which requires taxpayers to keep certain records, books of account or documents as prescribed in the notice, in terms of section 29 of the Tax Administration Act, 2011.
The notice which was gazetted on 28 October 2016 requires certain taxpayers to maintain transfer pricing documentation on an annual basis, and more.
The newly gazetted notice from SARS which was released at the end of October remains largely unchanged from the draft notice with the exception of increased thresholds and an additional section, “section 7”, which allows for an alternative arrangement with SARS for financial assistance transactions.
The gazetted threshold for potentially affected transactions is an aggregate value of more than R100 million. The previous draft proposed an aggregate value of more than R50 million or more than 5% of total gross income and R50 million. Importantly, the aggregate value is determined without offsetting any potentially affected transactions against one another. Furthermore, the R100 million threshold amount which has been stipulated in the notice is only applicable where it is reasonably expected that for the current year of assessment that threshold will be met. Additionally, paragraph 4 in the notice now only relates to potentially affected transactions which exceed, or are reasonably expected to exceed R5 million in value instead of R1 million which was initially stated.
These increases in threshold values should alleviate some of the burden for smaller businesses but it must be kept in mind that the threshold can still easily be met, especially by those firms which mainly deal with cross-border related parties (e.g. importers).
The notice is applicable for years of assessments commencing on or after 1 October 2016.
Taxpayers which fall below the R100 million threshold or separate transactions that fall below the R5 million threshold will still have to discharge their onus of proof of transacting at arm’s length which does require some type of transfer pricing analysis.
It is vital for taxpayers to work closely with skilled advisors in terms of the new requirements as SARS has expressly highlighted that this is a documentation retention requirement and therefore the requirements extend wider than simply a Transfer Pricing document.
It will be imperative for multinational companies to work closely with their tax advisory teams to make sure everything is in order, that all elements are documented accordingly and that the right information is in place.