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Transfer Pricing: Stemming the flow of Taxation Revenue From South Africa

Tuesday, 03 January 2006   (0 Comments)
Posted by: Author: Sean Kruger
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Transfer Pricing: Stemming The Flow Of Taxation Revenue From South Africa

When it comes to transfer pricing, there is a rise in regulations as government tries to stem the flow of taxation revenue leaving the country.Sean Kruger, National Director of tax services at Ernst & Young discussed this issue on Tax Issues, broadcast on Summit TV.

The question that set the ball rolling for the discussion was which companies would typically be affected by transfer pricing regulations.Sean explained that any company involved in cross-border transactions would fit the bill.These included multi-nationals with parent companies and a subsidiary locally, as well as companies of which the parent company resides in South Africa with subsidiaries abroad and where services and goods are transferred across borders.

The services could include any possible service applicable to companies such as management, legal, human resources services and even intellectual property, to mention a few.It could even include the provision of guarantees by the parent company in South Africa.Sean cautioned that it was important to carefully look at guarantee provision.Would a third party such a guarantee without compensation, as would a parent company? The answer is definitely not and therefore transfer pricing would apply.

The discussion then moved on to the question of whether transfer pricing was only a compliance issue.Sean felt that it was in fact a very useful tool to look at all aspects of a multi-national business, such as the fundamental economics and regulatory environment in which the company operated.It could be useful for a business planning and a tax planning tool.

Did ballpark percentages exist on which to fix transfer pricing?Sean said, "unfortunately not.”It was therefore very difficult for SARS to fix transfer pricing and they had the discretion to the gross income of the parent company for transfer pricing purposes.International databases existed with that carried relevant information, but these had to be adjusted for South African-specific circumstances

Source: By Sean Kruger (TaxTALK)



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