A critical analysis of the transfer pricing methodology the South Africa uses as compared to international standards

Abstract

Transfer pricing is an important component of international trade. It addresses the pricing of goods or services that falls outside normal commercial guidelines in order to gain some tax advantage. Multinational companies consider transfer pricing in their business dealings as they are continuously affected or impacted by it. The transfer pricing methodology that South Africa uses to combat tax avoidance together with the methodology used internationally was critically analysed. The results from both studies were compared to identify gaps or areas of improvement in the transfer pricing methodology that South Africa uses. The results from the analysis of the transfer pricing methodology that South Africa uses to combat tax avoidance indicated that its methodology is modernised; even though there are areas that can be improved in the administration of transfer pricing documentation and the introduction of an Advance Pricing Arrangement. An area for improvement is however to clarify the usage of more than one transfer pricing method in determining the transfer pricing results in South Africa. AFRIKAANS : Oordragsprysberekeningsmetodologie is ‘n belangrike komponent van internasionale handel. Dit het betrekking op die prysberekening van goedere of dienste wat buite die normale handelsriglyne val ten einde ‘n belastingvoordeel tot gevolg te hê. Multinasionale maatskappye oorweeg oordragsprysberekening in hul sake-onderhandelings aangesien hulle voortdurend daardeur geraak word. Die oordragsprysberekening wat deur Suid-Afrika gebruik word om belastingontduiking teen te werk tesame met die metodologie wat internasionaal gebruik word is krities ontleed. Die resultate van hierdie studies is vergelyk om gapings of areas vir verbetering in die Suid-Afrikaanse oordragsprysmetodologie uit te wys. ‘n Ontleding van die oordragsprysberekeningsmetodologie soos deur Suid-Afrika gebruik om belastingontduiking teen te werk het aangedui dat dit gemoderniseer is. Daar is egter areas in die administrasie van prysberekeningsdokumentasie en die bekendstelling van ‘n gevorderde prysberekeningsooreenkoms wat kan verbeter. Die gebruik van meer as een oordragsprysberekeningsmetode in die vasstelling van dieoordragsprysberekenings-resultate moet egter in Suid-Afrika oorweeg word.