Prescriptiveness of the South African transfer pricing tax legislation in providing guidance on how to transact at an arm's length price
Date
2011-02-25
Authors
Manyaka, Puleng Owen
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Abstract
Transfer pricing is a significant taxation problem facing both tax authorities and
multinational enterprises. Tax authorities around the world regulate transfer pricing
through tax legislation, which requires that cross-border transactions within
multinational enterprises be at arm’s-length. A number of countries in the
international community have amended their transfer pricing tax legislation to be
prescriptive by including regulations in their legislation on how to transact at arm’slength
price.
This research study presents an argument that the South African transfer pricing tax
legislation is non-prescriptive as it does not have regulations on how to transact at
arm’s-length price. With reference to the transfer pricing guidelines issued by the
Organisation of Economic Development and Corporation and the experience of the
United States of America in the enforcement of transfer pricing, this research study
examines whether or not the South African transfer pricing tax legislation should be
amended to be prescriptive by including regulations on how to transact at arm’slength
price.
The research findings reveal that to a certain extent the South African transfer pricing
tax legislation is consistent with the transfer pricing guidelines issued by the
Organisation of Economic Development and Corporation, but to a certain extent it is
not. The research findings also reveal that non-prescriptive legislation has in the past
created a problem in certain countries. Furthermore, the research findings reveal
through an analysis of the United States of America’s transfer pricing enforcement
experience, that prescriptive transfer pricing tax legislation in a tax system has a
positive impact.
Recommendation is therefore made in this research study that the South African
transfer pricing tax legislation should be amended to be prescriptive by including
regulations on how to transact at arm’s-length price.
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Keywords of the study: arm’s-length price, arm’s-length principle, income tax, IRS,
multinational enterprise, non-prescriptive, OECD, Practice Note 7, prescriptive,
SARS, section 31, section 482, South Africa, tax legislation, taxation, tax law, tax
authority, transfer pricing, transfer pricing methods, United States of America.
Description
Keywords
Transfer pricing, International business enterprises, Law and legislation, Taxation