Transfer pricing – where in the range is the right point?

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Amit Chadha | Director (Partner) | Global Transfer Pricing Services | KPMG | mail me |



Mohammed Pochee | Senior Manager | Global Transfer Pricing Services | KPMG | mail me |


 

 

 

 

 

 

 

 


Ignus Rademeyer | Manager | Global Transfer Pricing Services | KPMG | mail me |


In recent times, tax authority queries resulting in transfer pricing adjustments have increased significantly, both globally and in Africa. Often, the outcome of a transfer pricing benchmarking study is an arm’s length range rather than a specific margin or price, and the question arises as to which point within such a range is appropriate and therefore arm’s length?

SARS focus on transfer pricing

We note that the South African Revenue Service (SARS) has become stricter over the last couple of years when performing transfer pricing audits to combat non-compliant taxpayers.

Specifically, in this area – SARS Commissioner, Edward Kieswetter, has warned non-compliant taxpayers, on several occasions, that the revenue authority will act firmly against taxpayers who are engaged in tax transgressions. SARS is therefore determined to enforce tax laws in the country in a strict manner without exception.

In a media release dated 27 February 2020, Mr Kieswetter mentioned that “Transfer pricing remains a major concern across the globe and South Africa is no exception. Significant revenue leaves South Africa every year in the form of intra-group services linked to multinational enterprises (MNEs)”. Kieswetter further added that “Through such transfer pricing some MNEs engage in aggressive tax planning to create a disconnect between the local activities which give rise to profits and then declare these profits in tax jurisdiction with lower tax rates.

The concern is therefore that such practices increase the risk of reducing the sovereign tax base of South Africa in that the prices charged between connected persons are not reflective of an arm’s length price i.e., what independent third parties would agree. This clearly outlines the reasons for the aggressive transfer pricing audit practices adopted by SARS in the recent past.

SARS transfer pricing adjustment – the best point in the range

When SARS applies the results of


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Read the full article by Amit Chadha, Director (Partner) Global Transfer Pricing Services, Mohammed Pochee, Senior Manager Global Transfer Pricing Services and Ignus Rademeyer, Manager Global Transfer Pricing Services, KPMG, as well as a host of other topical management articles written by professionals, consultants and academics in the June/July 2022 edition of BusinessBrief.


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