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Transfer Pricing in South Africa
South Africa's transfer pricing regime is governed by Section 31 of the Income Tax Act 58 of 1962, which requires that cross-border transactions between connected persons be priced at arm's length. South Africa follows OECD Transfer Pricing Guidelines and applies the standard interquartile range (25th–75th percentile). SARS Practice Note 7 (PN7) — most recently updated in 2023 — provides detailed guidance on the application of TP rules in the South African context, including method selection, comparability analysis, documentation requirements, and the treatment of financial transactions.
A distinctive feature of South African TP law is the secondary adjustment. When SARS makes a primary TP adjustment (adjusting the price to arm's length), the difference between the arm's length price and the actual price is deemed to be a dividend for South African tax purposes — subject to 20% dividends withholding tax. This secondary adjustment creates an additional tax cost beyond the primary adjustment and makes TP non-compliance significantly more expensive. The deemed dividend arises automatically by operation of Section 31 — there is no discretion or relief mechanism unless the group can demonstrate the amount has been repaid or the pricing has been corrected.
South Africa has specific TP challenges related to its position as the largest economy in Africa and a gateway for multinational investment into the continent. Common TP issues include: management fees and technical service fees charged by foreign head offices to South African subsidiaries, IP royalty payments to foreign group entities (particularly for brand names and technology), intercompany loans (with thin capitalisation implications), and commodity export pricing for mining and agricultural groups. SARS has increased its TP audit capacity and uses CbCR data to identify risk — South African entities earning lower margins than comparables or paying significant fees to foreign affiliates are audit targets.
South Africa TP Quick Reference
Common TP Audit Triggers in South Africa
Significant management fee or technical service fee deductions
IP royalty payments to foreign group entities
Intercompany loans with thin capitalisation concerns
Commodity export pricing (mining, agriculture)
CbCR data showing SA entity margins below comparables
South African entity consistently loss-making while group is profitable
South Africa vs. OECD Guidelines: Key Differences
South Africa follows OECD IQR (25th–75th). Key features: (1) secondary adjustment deemed dividend at 20% dividends tax; (2) Practice Note 7 provides detailed local guidance; (3) no formal documentation threshold (applies to all cross-border related-party transactions); (4) thin capitalisation interaction with TP for loans; (5) commodity pricing focus for mining and agriculture.