Abstract:
Transfer pricing and customs valuation rules, are both ultimately aimed at ensuring a transaction with an associated enterprise or related party is conducted at arm?s length. The literature on the intersection of these rules has identified, on the one hand, the potential for double taxation and, on the other hand, exploitation of the differences in these regimes by taxpayers.
After identifying the obstacles to harmonisation of customs valuation and transfer pricing rules and the opportunities for applying these rules in a harmonised way (in order to manage the risks associate with these rules), this mini-dissertation critically analyses the South African income tax and customs legislation and evaluates it by way of a case study based on the author?s recent experience. This analysis and case study illustrates that in general transfer pricing documentation cannot be used to show that the transaction value of the imported goods is arm?s length and that the prospects for harmonisation of transfer pricing and customs valuation rules in South Africa are poor.
The means of managing the transfer pricing and customs valuation risks identified in the existing literature and the case study are further analysed to identify whether they are feasible in South Africa. It is established that importers should incorporate information relevant to customs authorities in their transfer pricing documentation and use provisional declarations where future transfer pricing adjustments are expected. The importer should
also evaluate its transfer prices continually in order to avoid year-end transfer pricing adjustments.
