The SARS transfer pricing unit, based at the Corporate Tax Centre in Megawatt Park, is a sophisticated and vigilant new weapon in the SARS armoury.
'Your main aim in determining and documenting your transfer prices should be to convince the Commissioner that your transfer prices are legitimate arm's length transactions,' says the Practical Tax Loose Leaf Service.
If you're not compliant and SARS catches you of transfer pricing, you'll face the following consequences.
Steer clear of transfer pricing or face these three consequences
Consequence #1: If the SARS Commissioner detects any discrepancy in the pricing and suspects transfer pricing, he'll adjust the consideration or price for tax purposes. This adjusted amount is then used to determine the taxable income of the parties to the transaction, which affects the amount of tax due. And the tax burden will have to be paid within the appropriate jurisdiction.
This can have a significant impact on your bottom line tax bill as different jurisdictions impose different rates of tax.
Consequence #2: Section 31 of the Income Tax Act, which governs transfer pricing, doesn't specifically impose penalties for non-arm's length transfer pricing practices. However, many of the punitive provisions of the Income Tax Act could be thrown at you, including:
Consequence #3: If you fall foul of the transfer pricing provisions, you can be sure that the assessors will be scrutinising your tax returns with increased diligence in the future!
Remember, every action has a consequence. If you're caught for transfer pricing, SARS will impose harsh penalties.