Introducing the Transfer Pricing Risk Assessment Tool

The South African transfer pricing legislation was introduced in 1995 through section 31 of the Income Tax Act, 1962. The provisions of Section 31 were introduced to counter transfer pricing practices which may have adverse tax implications for the South African fiscus.

The provisions of section 31 have been updated to be more general in order to cover all transactions as opposed to addressing specific transactions. Certain concepts were also introduced to align the provision of section 31 to the OECD (Organisation for Economic Cooperation and Development) Guidelines.

The challenge currently faced by taxpayers in their cross-border intercompany transactions.

The provisions of section 31 require the taxpayer to price their cross-border intercompany transactions in a manner consistent with the price that would be charged or paid if the transaction had taken place between two comparable independent parties (i.e., arm’s length price). Furthermore, it empowers SARS to adjust the consideration in respect of these cross-border intercompany transactions to reflect an arm’s length price.

SARS requires the taxpayer to prepare and submit transfer pricing documentation (i.e., master file and local file) that supports the arm’s length nature of these transactions if certain thresholds are met. The SARS issued Public Notice no. 41186 in terms of section 29 of the Tax Administration Act, 2011 which requires taxpayers to submit transfer pricing documentation (i.e., master file and local file) if the aggregate of the taxpayers potentially affected transactions exceed or are expected to exceed R100 million in that specific year of assessment.

Now, how will the transfer pricing risk assessment tool help taxpayers?

The tax technology team together with transfer pricing experts of SizweNtsalubaGobodo Grant Thornton have developed a transfer pricing risk assessment tool that will assist the taxpayer in assessing whether there is a requirement to submit transfer pricing documentation based on the South
African transfer pricing documentation requirements.

The tool provides the user with a risk rating based on the input provided and indicates the taxpayer’s obligation in relation to the transfer pricing documentation. SizweNtsalubaGobodo Grant Thornton’s team of transfer pricing experts can assist taxpayers in ensuring that they
are compliant with the South Africa transfer pricing legislation and regulations.

Please refer to the International Tax & Transfer Pricing | Grant Thornton site for an extensive list of the services that can be provided by our transfer pricing experts.