SA Tax Authority Scrutinises Transfer Pricing Arrangements

by Robert Lee, Tax-News.com, London

29 August 2002

Cross border trade transactions are increasingly coming under the scrutiny of the South African Revenue Service (SARS), according to a report on Tuesday from local news service, Business Day.

The business daily revealed that the information technology sector is the latest to have received questionnaires from the tax authority asking for details about transactions between related companies. According to observers, the aim of the questionnaires is to develop a database of possible future audit targets.

Speaking to Business Day, tax expert Peter Surtees explained that transfer pricing - the process by which companies set the prices at which they transfer goods and services to related companies - has been on the revenue service's radar for some time now, and that legislation designed to ensure that profits and tax payable are allocated correctly in cross-border inter-group transactions were introduced at the same time as South Africa's exchange control regulations were updated.

Mr Surtees warned that the revenue department was likely to apply the transfer pricing provisions if an international transaction does not reflect the value of the goods or services in question, but stated that documentation could play a large part in being able to prove that the pricing policy is reasonable:

'Without documentary support the taxpayer might be hard pressed to rebut a decision of the SARS,' he explained.

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