Transfer Pricing Adjustments and SARS’ Penalty Systems

In a prior article we noted the impact of adjustments for customs valuation purposes, specifically where these have been with a retrospective effect. Multinational enterprises (MNE’s - importers and exporters that are part of the same international group) are required to disclose these adjustments to SARS within 30 business days of receipt of the debit and / or credit note relating to the adjustment, including the supporting compensating adjustment calculations. This is to provide a complete breakdown of how they have arrived at the transfer pricing adjustment.

Previously SARS has accepted the late submission of the transfer pricing adjustments without levying any penalties under the customs and excise administrative penalty provisions. However recently, we have noted that SARS has started to enforce the use of the penalty provisions leaving the importer with only one option, namely, to follow the internal administrative appeals route to object against the penalties that have been imposed. Notably, these penalties imposed are as much as 25% of the understated customs duties, or R40,000 per customs entry which is effected, or imprisonment. Furthermore, following the internal administrative appeals route is a costly exercise with no guaranteed outcome.

Therefore, to avoid a lengthy and protracted appeals process and the accumulation of interest on the disputed “outstanding debt”, it is imperative that these adjustments are submitted within the 30-business day period to ensure that no additional penalties or interest is levied. For the sake of clarity, the start date is triggered when the respective debit or credit notes are issued to the MNE.

MNEs should ensure that they build specific controls into their tax compliance processes for transfer pricing adjustments to avoid penalties being imposed. Should you need assistance in disclosing these adjustments to SARS, please contact our Indirect Tax Team for assistance.

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