The expectation gap in transfer pricing policy documentation in South Africa

Abstract

Pricing for inter company trade is currently amongst the thorniest corporate problems and has been for a few decades. Tax authorities find it extremely difficult to tax these transactions as their inherent nature and substance are more often than not properly documented and they therefore need to rely solely on the companies to ensure that these transactions have been taxed correctly. In South Africa disclosure requirements in terms of Practice Note 7 for companies relating to transfer pricing have been issued by the South African Revenue Services (SARS). Companies who are non-compliant with these requirements could face criminal charges. There is however, as will be seen from this study a lack of clear guidance as to the requirements from SARS pertaining to what information should be included in a transfer pricing policy document. This study was aimed at investigating the shortcomings of transfer pricing policy documents in South Africa compared to international standards with a view to make recommendations for improvements. Data for the study was collected by doing a literature study and interviewing transfer pricing specialists in the big four accounting firms and one specialist from SARS to obtain their views on the shortcomings and recommendations to improve transfer pricing policy documents. AFRIKAANS : Oordragprys vir inter-maatskappy handel is tans een van die netelige korporatiewe uitdagings en was dit ook vir die afgelope paar dekades. Belastingowerhede vind dit moeilik om die korrekte belastings te hef op die transaksies omdat hulle staatmaak op maatskapye om hierdie transaksies goed te dokumenteer. Bekendmakingsvereistes is uiteengesit in Praktyk Nota 7 soos uitgegee deur die Suid-Afrikaanse Inkomstediens. Maatskappye wat nie voldoen aan hierdie vereistes staar vervolging in die gesig. Die vereistes vir oordragprysbeleidsdokumentasie is nie baie duidelik uiteengesit nie. Die doelwit van hierdie studie was om tekortkominge van oordragprysbeleids dokumentasie in Suid Afrika te ondersoek ten einde om voorstelle vir moontlike verbeteringe te maak. Data vir die studie was verkry deur ‘n literatuurstudie en onderhoude wat gevoer is met oordragprysspesialiste van die groot vier rekenmeestersfirmas en een spesialis van die Suid-Afrikaanse Inkomstediens om hulle standpunte en voorstelle om oordragprysbeleidsdokumente te verbeter, aan te hoor.