Transfer pricing : possible implications of the amendments to the Income Tax Act
Abstract
Transfer pricing legislation was introduced into the Income Tax Act in 1995. The amendments of the transfer pricing legislation were introduced by SARS in the Explanatory Memorandum on the Taxation Laws Amendment Bill 2010, which came into effect from 1 October 2011.
The amended Section 31 of the Income Tax Act seeks to capture both direct and indirect transactions for transfer pricing purposes, thereby substantially widening the scope and implication of the Section. The special inclusion of indirect transactions within the scope of South African transfer pricing was partly driven by a recent United Kingdom court case on transfer pricing, namely, DSG Retail Limited v HMRC STC (SCD) 397 (Olivier & Honiball, 2011:662–663).
Practice Note No. 7 was issued by SARS in 1999 to provide guidelines on the procedure to follow to comply with the transfer pricing provisions before Section 31 of the Act was amended. Uncertainty exists as to the implication of the amended transfer pricing legislation. The purpose of the study is to determine the possible implications of the substantially amended transfer pricing legislation.