Our transfer pricing services are a vital tool for businesses operating in a globalised economy, where aligning commercial practices with relevant tax compliance regulations is essential. Our services ensure transactions between associated international parties meet the ‘arm’s length’ principle (ALP), a standard enforced by tax authorities globally, including South Africa. 

A definition of transfer pricing
Transfer pricing is an agreed framework of principles that seeks to examine and evaluate the ‘arm’s length’ status between connected persons or associated parties, based on the position that would have existed, had they been independent, unconnected parties. The tax authorities in many countries, including South Africa, accept transfer prices only if they are in line with the arm’s length principle.

The globalisation of business models and an ever-increasing focus on transfer pricing by tax authorities has elevated it to a mainstream priority for companies operating internationally.

Why tax authorities are vigilant
Transfer pricing is often seen by governments as an area of compliance weakness and potential abuse. As a result, it has been increasingly under the spotlight as tax authorities focus on cross-border transactions between associated parties.

If a tax authority enquires into the cross-border transactions of a company, the tax authority will often expect documentation that supports the arm’s length nature of such transactions. A transfer pricing audit can be a long and resource-intensive process. Getting it right up front can be a significant cost saving.

The South African Revenue Service (SARS) has implemented transfer pricing requirements in line with the Organisation for Economic Co-operation and Development (OECD)’s approach, which consist of:

• Submission or notification of country-by-country reporting
• Preparation and, in some cases, submission of a master file and local file
• Retention of transfer pricing related records.

 
The globalisation of business value chain models
In the competitive global economy, companies are always looking at commercial ways to improve the efficiency of their business. This may involve as complex a process as restructuring the entire international value chain. Alternatively, it may be as simple as establishing a presence in a new country to be closer to suppliers or customers. In either case, differences in the business model adopted could drive very different tax outcomes and transfer pricing will be a critical consideration.

Managing transfer pricing risk
It is essential for businesses to develop defensible transfer pricing policies, as well as suitable documentation to support it. It is also important to establish internal governance processes to monitor the proper application of these policies. A robustly developed and implemented transfer pricing policy will help minimise tax exposure and improve the chances of a successful defence on audit.

The financial risks of misapplication of transfer pricing principles can be significant. The transfer pricing compliance obligation is increasing and tax authorities take a multiple-year approach to audits. An adjustment is often applied across a number of financial years, magnifying the potential financial effect, with a corresponding increase in interest, unpaid tax and/or penalty provisions, as well as the potential for double taxation.

Our key transfer pricing services 

• Strategy development: Crafting efficient transfer pricing strategies that align with your business objectives 
• Documentation: Preparing and reviewing country-by-country reports, master files and local files to meet Organisation for Economic Co-operation and Development (OECD) requirements
• Policy design: Developing and maintaining robust transfer pricing policies and supporting documentation
• Benchmarking studies: Conducting thorough comparative studies to support pricing policies 
• Risk management: Performing transfer pricing risk reviews to pre-empt and mitigate potential compliance issues
• Dispute resolution: Resolving disputes with tax authorities effectively, minimising the risk of penalties and double taxation
• Audit defence: Preparing for and defending against transfer pricing audits, a process that can be lengthy and resource-intensive. 

    
The benefits of our services

• Global insight and local expertise: As part of the BDO Global Centre of Excellence, we provide insights that help navigate complex international tax landscapes. Stay informed: access the global site HERE
• Cost efficiency: Proactive management of transfer pricing can lead to significant cost savings by avoiding lengthy audits and minimising penalty risks 
• Compliance and optimisation: Ensure compliance with local and international tax laws while optimising tax liabilities across jurisdictions. 

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