South Africa: Uncertainty about transfer pricing treatment of financial transactions

South Africa: Uncertainty about transfer pricing

From a South African perspective, there is uncertainty regarding the treatment of financial transactions.

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The withdrawal of South African Revenue Service (SARS) Practice Note 2 on thin capitalisation (retroactively effective from 2012) has further highlighted the uncertainty regarding the treatment for foreign intra-group financial assistance to South African members of multinational groups.

Earlier this month, the Organisation for Economic Cooperation and Development (OECD) released a report regarding the transfer pricing treatment of financial transactions. It is expected that most items in this report will be incorporated in a new Chapter X of the OECD Transfer Pricing Guidelines. Read TaxNewsFlash [PDF 246 KB]

Although the OECD Transfer Pricing Guidelines constitute guidance only—and South Africa is also not a member of the OECD, but has “observer status”—paragraph 3.2.1 of SARS Practice Note 7 on transfer pricing states that because of the international importance of the OECD Transfer Pricing Guidelines, Practice Note 7 is in part based on those guidelines.

Furthermore paragraph 3.2.3 of SARS Practice Note 7 requires that the OECD Transfer Pricing Guidelines are to be followed absent specific guidance contained in Practice Note 7, the provisions of the South African transfer pricing law, or any of the tax treaties entered into by South Africa.


KPMG observation

Since there is currently no other guidance on financial transactions from a South African perspective, tax professionals expected that South African Revenue Service will adopt the guidance set out in the new Chapter X of the OECD Transfer Pricing Guidelines.

Read a February 2020 report [PDF 539 KB] prepared by the KPMG member firm in South Africa 

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