South Africa’s Parliamentary Trade and Industry Committee have called for the criminalisation of transfer pricing.  Transfer pricing is the setting of the price for goods and services sold between controlled / related legal entities within an enterprise, for example, if a subsidiary company sells goods to a parent company, the cost of those goods is the transfer price.  When transfer pricing in SA is abused, it results in large corporations shifting profits offshore which then costs the country billions in unpaid corporate taxes.  It has been argued that this could be prevented if government merely implemented the laws it already has in place. The problem with that, however, is that SARS lacks the capacity to deal effectively with the abuse of transfer pricing. The tax authority is also not provided with sufficient information by taxpayers to allow it to probe cross-border transactions to determine whether they involved the illicit transfer of profits from high-tax to low-tax regimes.  The Davis Tax Review Committee has recommended to the Treasury that this capacity be beefed up significantly and SARS be given more information by taxpayers.  The committee has proposed that all companies should  have to state in their tax returns whether they have firms in tax havens or low-tax jurisdictions. 

Shepstone and Wylie’s tax practice group can advise on these complex and critical issues.