The regulation of retroactive transfer pricing adjustments and valuation of imported goods under the Customs and Excise Act 91 of 1964

Abstract

Retroactive transfer pricing adjustment is defined as the adjustment of prices of goods sold within the MNEs in accordance with its transfer pricing policy. Retroactive transfer pricing adjustment is usually performed yearly, and such an adjustment ultimately affects the customs value of goods imported by the MNEs within the financial year that the adjustment is performed. In this regard, the customs declarations of previous imports that are affected by the performed adjustments must be amended. The prices can be adjusted downwards or upwards depending on whether the targeted margin was met. This adjustment of the price of imported goods must also be reported to SARS customs, and the bill of entries affected by such adjustment must be amended accordingly by way of voucher of correction. The regulation of retroactive transfer pricing adjustments is imperative to the economy of South Africa. Considering that MNEs might have a considerable number of imports from the parent company or other subsidiaries over-seas, the requirement to process a voucher of correction for the import transactions affected by the retroactive transfer pricing turns to be an administrative burden for both SARS and MNEs. In certain instances, the exercise of processing what can be thousand of vouchers of correction tend to become an impractical task for both MNEs and SARS. The other challenge of retroactive transfer pricing adjustments is that they are prone to manipulation by the MNEs to perform only downward adjustments to evade paying the correct customs duties. Accordingly, this research recommends that South Africa should establish measures to properly regulate retroactive transfer pricing adjustments and customs valuation. In this regard, the researcher discusses the measures that could be employed to circumvent possible manipulation of retroactive transfer pricing adjustments and eliminate the administrative burden associated with processing vouchers of correction.