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South Africa – Transfer Pricing (2025)

The arm’s length principle in South Africa is codified in Section 31 of the Income Tax Act, Act No. 58 of 1962 (“SA Income Tax Act”). Administrative guidance is provided by SARS Practice Note 7, which must be read together with record-keeping requirements now replaced, to the extent applicable, by Notice 1334 of Government Gazette 40375 dated 28 October 2016. Practice Note 7 clarifies that it is a practical guide rather than a prescriptive or exhaustive discussion (paragraph 3.1) and explicitly recognizes the international importance of the OECD Transfer Pricing Guidelines, stating that the Practice Note is based, inter alia, on those Guidelines (paragraph 3.2).

The domestic scope is grounded in the general definition of “connected person” contained in Section 1 of the SA Income Tax Act, which covers individuals, trusts, partnerships and companies. Effective for years of assessment commencing on or after 1 January 2022, domestic transfer pricing legislation was extended to apply also to “associated enterprises” as defined in Article 9 of the OECD Model Tax Convention, insofar as they relate to one another.

Arm’s length principle and the role of the OECD Guidelines

Section 31 enshrines the arm’s length principle in South African domestic law. The OECD Transfer Pricing Guidelines provide supporting technical guidance and are relied upon by SARS for implementation and interpretation. Practice Note 7 gives Section 31 subsidiary application status and repeatedly refers to OECD guidance for method selection, comparability analysis and other technical transfer pricing matters.

The relevant statutory concept is “connected person” under Section 1 of the SA Income Tax Act, a broad definition encompassing natural persons, trusts, partnerships and companies. Since 1 January 2022, the domestic transfer pricing rules explicitly encompass “associated enterprises” per Article 9 of the OECD Model, thereby expanding the set of related parties for transfer pricing purposes. Interpretation Notes (for example, Interpretation Note 127 and Interpretation Note 128) complement the statutory definitions and provide further administrative guidance on determining control and relationships.

Methods and criteria for application

South Africa does not impose a statutory hierarchy of transfer pricing methods; instead it follows the “most appropriate method” approach consistent with the OECD Transfer Pricing Guidelines. Neither Section 31 nor South African tax treaties prescribe a particular methodology, so the Commissioner generally seeks the most appropriate method based on facts, circumstances and the reliability of available comparables. The Commissioner endorses the traditional and transactional methods set out in the OECD Guidelines: Comparable Uncontrolled Price (CUP), Resale Price, Cost Plus, Transactional Net Margin Method (TNMM) and Profit Split. This approach is reflected in Practice Note 7 and Interpretation Note 127. Method selection is driven by the method that yields the highest degree of comparability for the transaction at hand.

Comparability and ranges

South Africa follows the comparability analysis of Chapter III of the OECD Guidelines. There is no domestic statutory preference for domestic comparables over foreign comparables; selection is governed by the principles of comparability and data reliability in the OECD Guidelines. The use of “secret comparables” is not permitted under South African domestic transfer pricing rules. There is no statutory provision that mandates use of an arm’s length range or specific statistical measures; however, Practice Note 7 endorses OECD guidance regarding ranges. Paragraph 11.4.7 of Practice Note 7 states that the Commissioner concurs with the OECD view that the adjustment should reflect the point in the range that best accounts for the facts and circumstances of the controlled transaction, and that in the absence of persuasive evidence the Commissioner may select the mid-point of the range. Comparability adjustments are not explicitly provided for in domestic legislation, though OECD guidance on comparable adjustments is followed in practice when appropriate.

Documentation and reporting

South African rules require transfer pricing documentation: a Master File, a Local File and a Country-by-Country (CbC) report consistent with Annexes I–III to Chapter V of the OECD Guidelines. The company income tax return (IT14) contains detailed questions about cross-border transactions with connected parties and whether supporting documentation exists to substantiate arm’s length dealings. The duty to keep records is set out in Section 29 of the Tax Administration Act, 2011, and filing obligations for CbC, Master and Local Files derive from Section 25 of the Tax Administration Act, 2011. Notice 1334 (Government Gazette 40375) identifies the persons required to keep specified records.

Filing and retention timing: taxpayers required to file CbC, Master and Local Files must do so within one year of the end of their financial year pursuant to Section 25. All documentation must be submitted in English; specific filing dates and retention periods are provided in the relevant SARS notices. The IT14 return questions must be completed as part of tax return filing.

Thresholds and exemptions: a CbC filing obligation applies where consolidated group revenue equals R 10 billion or EUR 750 million. A Local File is required where the aggregate of a person’s “potentially affected transactions” for the year of assessment, without netting, exceeds or is reasonably expected to exceed R 100 million. If the ultimate parent entity of the group is resident in South Africa or a Master File has been prepared by any entity within the group, the person must also submit a Master File. These obligations are governed by Section 29 (duty to keep records) and the relevant public notices. There are no transfer-pricing-specific penalties in the legislation; instead general administrative penalties under the Tax Administration Act apply for late or non-filing of CbC, Master and Local Files. The profile text references incidences of non-compliance under Section 210(2) and a fixed penalty in accordance with sections cited in the profile (text: “Incidences of non-compliance by a person in terms of Section 210(2) of the Tax Administration Act, 2011 that are subject to a fixed penalty in accordance with sections 2010(1) and 211 of the Tax Administration Act, 2011”).

Safe harbours / simplifications / materiality

South Africa does not provide domestic safe harbours or simplification measures specific to industries, taxpayer types or transaction types. The simplified approach for low value-adding intra-group services has not been adopted. South Africa has expressed interest in Amount B (the Simplified and Streamlined Approach for Baseline Marketing and Distribution Activities) but has not legislated its application. The country respects the outcome of the simplified and streamlined approach applied by covered jurisdictions in line with the Inclusive Framework political commitment.

APAs and MAP; procedures and timing

APAs are available in South Africa through legislation enshrined in Section 76A of the Income Tax Act, No. 58 of 1962. The operation of the APA regime is subject to Commissioner’s Notices which are still to be released; consequently, detailed procedural rules and timing are not yet provided in the profile. Mutual Agreement Procedures (MAP) are available and SARS’s MAP profile contains relevant information. SARS also operates enhanced engagement and cooperative compliance programmes and domestic Alternative Dispute Resolution (ADR) mechanisms that apply to corporate tax matters including transfer pricing. The profile does not specify concrete processing timelines for APAs or MAPs beyond the legal basis and forthcoming Commissioner’s Notices.

Penalties and other considerations (secondary adjustments, re-characterisation, year-end adjustments, PEs)

Secondary adjustments are provided for in Section 31(3) of the SA Income Tax Act: the difference between taxable income determined on an arm’s length basis and taxable income determined on a non-arm’s length basis is treated as a dividend consisting of a distribution of an asset in specie declared and paid by the South African taxpayer, on which dividends tax is payable. For natural persons, the difference is deemed a donation subject to donations tax. Downward corresponding adjustments are not permitted in the absence of a MAP: the legislation requires proof of a “tax benefit” for Section 31 to apply, and absent a MAP there can be no downward corresponding adjustment. Year-end adjustments are allowed in practice; although there are no specific statutory provisions concerning year-end adjustments, they are considered and evaluated under the arm’s length principle as set out in Section 31.

Re-characterisation risk and adjustments relating to intangibles and other cross-border arrangements may be addressed not only under transfer pricing rules but also under other anti-avoidance and substantive provisions of the tax code, notably Sections 11(a) (general deductions) and 80A–80L (GAAR).

Attribution of profits to Permanent Establishments (PEs)

All 79 of South Africa’s tax treaties contain Article 7 as it read before 2010. South Africa does not apply the Authorized OECD Approach (AOA) in its treaties. The domestic transfer pricing framework does not contain specific guidance adopting the AOA for profit attribution to PE. South Africa has a reservation regarding the OECD Profit Attribution Guidelines 2008. In practice, when attributing profit to a PE, only expenses actually incurred by the PE in the year of assessment are taken into account, including relevant interest, royalties and other expenses, rather than applying the AOA.

Other relevant information

South Africa has not adopted the HTVI (Hard-to-Value Intangibles) approach defined in Chapter VI of the OECD Guidelines. Domestic legislation does not contain detailed pricing rules for intangibles, but the country follows OECD guidance at a high level; additionally, Section 23I of the SA Income Tax Act contains specific anti-avoidance rules that prohibit deductions in respect of certain intellectual property licensing arrangements and lists scenarios such as exportation of IP, bare dominium structures, sale of a business as a going concern with IP transferred to a non-taxable person, R&D structures involving non-taxable licensors, controlled foreign company royalty payments, and synthetic arrangements.

In relation to financial transactions, the domestic transfer pricing law does not include specific pricing rules but SARS follows the OECD Guidelines for financial transactions. Interpretation Note 127, issued on 17 January 2023, provides guidance on the determination of taxable income for certain international transactions including intra-group loans. There are other statutory provisions relevant to the tax treatment of interest and financial payments, including Sections 23M (limitation on interest deductions to persons not subject to tax), 23N (limitation for reorganisations and acquisitions), 50B (withholding tax on interest), 24J, 24JA, 24JB, 24K, 24L and 24O, and a National Treasury discussion paper dated 26 February 2020 examined measures in line with BEPS Action 4.

Cost contribution arrangements are not specifically regulated in domestic law; South Africa follows the OECD guidance on cost sharing as reflected in Practice Note 7. The country operates domestic enhanced compliance programmes and ADR mechanisms applicable to transfer pricing disputes. APA legislation exists (Section 76A) but Commissioner’s Notices to give practical effect to the APA regime remain to be released.

Conclusion

South Africa’s transfer pricing regime is anchored in Section 31 of the Income Tax Act and administered through Practice Note 7 and Interpretation Notes, with substantial reliance on the OECD Transfer Pricing Guidelines for technical application. The country adopts a most-appropriate-method approach, accepts the main OECD methods (CUP, Resale Price, Cost Plus, TNMM, Profit Split), and follows OECD guidance on comparability. Documentation obligations (Master File, Local File, CbC) and thresholds are in place (consolidated group revenue of R 10 billion / EUR 750 million for CbC; R 100 million threshold for Local File), with filings and records required in English. Secondary adjustments are addressed by Section 31(3), downward corresponding adjustments are not feasible absent a MAP, and APAs are provided for in Section 76A though implementing Commissioner’s Notices are awaited.

References

For additional information and to access the original OECD country profile please consult: https://www.oecd.org/en/topics/sub-issues/transfer-pricing/transfer-pricing-country-profiles.html

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