In July of 2016 South African Revenue Services issued a draft notice in terms of Section 29 of the Tax Administration Act.

The draft notice sets out additional record keeping requirements for transfer pricing transactions.

Currently Section 31 of the Income Tax Act has no specifically defined transfer pricing documentation requirements and factually does not make it compulsory for taxpayers to maintain or submit such documentation to SARS.

The draft notice potentially changes this, setting out details of which persons will be required to keep specified records, books of account or documents.

These persons are defined as being any person who has entered into an affected transaction as defined, where the aggregate of such transactions for a particular year of assessment exceeds or is reasonably expected to exceed the higher of 5% of the person’s gross income or R 50 000 000.

An affected transaction is simplistically any transaction which takes place cross border between persons who are connected.

The documentation requirements are extensive and taxpayers need to consider very carefully whether or not they are likely to fall within the requirements of this draft notice. Given the extent and nature of the documentation requirements it will be necessary to put in place the requisite mechanisms to ensure compliance sooner rather than later.

What is important to note is that this draft notice places a responsibility on taxpayers to maintain specific documentation which to date has not been a statutory obligation, although has always been advisable.

In addition in his budget speech of 2017, the South African Minister of Finance in his proposed tax changes, indicated that large multinational companies will be required to submit transfer pricing policies to SARS form 31 November 2017.

Although no legislation is yet available to indicate precisely what this will mean the draft notice gives a good indication and it is strongly advised that taxpayers start to consider these requirements as soon as possible.

John Jones

Corporate and International Taxation Director, Johannesburg

Also read: Tax considerations surrounding cross border loans