Recommendations for the Implementation of Transfer Pricing Simplification Measures in the Republic of South Africa

Abstract

Concerns about multinational entities shifting profits to exploit differences in corporate tax rates have resulted in the evolution of transfer pricing regulations. This has resulted in taxpayers and tax authorities experiencing challenges in complying and administering transfer pricing regulations. To address these challenges, transfer pricing simplification measures can be implemented. This research report examined the simplification measures recommended by the Organisation for Economic Co- operation and Development and those available in five selected Commonwealth jurisdictions, namely the United Kingdom, India, Australia, Canada and Zambia. It evaluated the rationale for implementing these measures as well as their benefits and drawbacks. The simplification measures recommended to be implemented in the Republic of South Africa are the establishment of safe harbours, a simplified approach to low value-adding intragroup services, the simplification of Advance Pricing Arrangement procedures and reduced fee charges, the adoption of the Commodity Rule and the implementation of the simplified and streamlined approach for routine baseline marketing and distribution activities. While these measures can provide certainty and reduce the compliance and administrative burden, there is a risk of double taxation if they are not designed to achieve an arm’s length outcome or a reasonable estimate of an arm’s length outcome.