Supporting documents to the TP Introduction and Update Seminar

The Continuing Education Questions are at the bottom of this page.

Seminar recordings:

Lecture 1 – https://www.dropbox.com/s/qhufher4kxqchxb/1st%202018-07-25%2014.30%20Transfer%20Pricing%20-%20Introduction%20Course%20by%20Dr%20Daniel%20Erasmus.mp4?dl=0

The first part of the first lecture by Prof. Dr. Erasmus was not clear due to connectivity issues. That first part is clearly recorded above.

alternate link: https://www.dropbox.com/s/0ucej5b6kjhicp8/2018-07-25%2014.30%20Transfer%20Pricing%20-%20Introduction%20Course%20by%20Dr%20Daniel%20Erasmus.wmv?dl=0

Lecture 2 – https://www.dropbox.com/s/5jsd2z3dmqkilat/2nd%202018-07-26%2014.31%20Transfer%20Pricing%20-%20Introduction%20Course%20by%20Dr%20Daniel%20Erasmus.mp4?dl=0

alternate link: https://www.dropbox.com/s/xeqj6udkgep8r7t/2018-07-26%2014.31%20Transfer%20Pricing%20-%20Introduction%20Course%20by%20Dr%20Daniel%20Erasmus.mp4?dl=0

Lecture 3 – https://www.dropbox.com/s/bv4uj60idtj1nlo/3rd%202018-07-27%2014.30%20Transfer%20Pricing%20-%20Introduction%20Course%20by%20Dr%20Daniel%20Erasmus.mp4?dl=0

alternate link: https://www.dropbox.com/s/5fib6anelg6241w/2018-07-27%2014.31%20Transfer%20Pricing%20-%20Introduction%20Course%20by%20Dr%20Daniel%20Erasmus.mp4?dl=0

Updated and combined Slide presentations:

https://www.dropbox.com/s/o9488z04efvvj4r/TRANSFER%20PRICING%20INTRO%20COURSE%20PRESENTATION.pptx?dl=0

Latest TP cases in Africa:

TP judgments in Africa – as at May 2019

Additional documents:

4. The latest on the  profit split method –  http://www.oecd.org/tax/transfer-pricing/revised-guidance-on-the-application-of-the-transactional-profit-split-method-beps-action-10.pdf

5.South Africa’s first transfer pricing case_ – Lexology and see https://www.pwc.co.za/en/assets/pdf/synopsis/synopsis-may-2018.pdf

6. See the country summaries below as well – New Mozambique TP rules

7.See the country summaries below as well – KENYA TRANSFER PRICING OVERHAUL 2018

8.Nigeria – See the country summaries below as well – Transfer-Pricing-Newsletter-Presentation-on-Impact-of-BEPS-and-Other-Reforms

9.See the country summaries below as well – Zambia 2018 TP rules

10. A Zambia ZRA case study on management fees in a mining group structure presented to ATAF: TP ZAMBIA ZRA Nov 2016 illustration of management services

Country summaries of TP laws, rules and  regulations:

https://www.tpa-global.com/dv/page23901/country-summaries

IRS updates table for country-by-country reporting jurisdictions

On 25 July 2018, the US Internal Revenue Service (IRS) issued a Country-by-Country Reporting News & Information bulletin (Issue Number: 2018-4) to announce that the country-by-country reporting jurisdiction status table (the table) has been updated.
The table indicates a last reviewed or updated date of 24 July 2018.
The table includes the jurisdictions that are in negotiations for a bilateral competent authority arrangement (CAA) pursuant to which country-by-country reporting data will be exchanged, have satisfied the United States’ bilateral data safeguards and infrastructure review, and have consented to be listed.
The table also includes the jurisdictions with which the IRS and the jurisdiction’s competent authority have signed a CAA, as well as the operative date of the CAA.

A case study for illustration and Continuing Education purposes:

Transfer Pricing Case Study – Shoes (this was prepared by a BDO entity and is a good illustration of key TP principles)

Transfer Pricing in a Nutshell – by Dr. Ferdie Schneider, Head of Tax, BDO Johannesburg

The advent of the Organisation for Economic Cooperation and Development’s (OECD’s) work on Base Erosion and Profit Shifting (BEPS) saw a brand new global focus on Transfer Pricing. The purpose of Transfer Pricing legislation is a simple one. As the world economies globalise and international trade increase, multinationals increasingly spread their economic activity across the globe. Multinationals have access to sophisticated measures that can minimise tax payable across the globe. One of these measures is transfer pricing. Multinationals can reduce their tax bills through pricing between connected parties, ensuring that the profits are transfer priced to the lowest tax jurisdiction. These transfer pricing mechanisms are less efficient with traditional goods and services (although not necessarily inefficient), and much more difficult to detect in intangible type transactions such as trade-marks, intellectual property, and the like. Global cooperation between Tax Revenue Authorities and exchange of information across the globe support the monitoring and tracking of transfer pricing between multinationals. Continued automation and digitisation would probably see a tremendous increase in tax adjustments resulting from Transfer Pricing in future.

South Africa actively supports the OECD’s work on BEPS. In support of the BEPS initiative, the South African Revenue Service (SARS) has issued various regulations and guidelines on the subject, aimed at enforcing and monitoring transfer pricing. South Africa’s Transfer Pricing (cross-border) legislation has its origins in one section only, namely section 31 of the Income Tax Act, 1962 (ITA). The principle of Transfer Pricing is based on the simple premise of comparing pricing of transactions between unrelated parties to that of related parties. As the law now forces compliance with Transfer Pricing legislation and regulations, the manner in which the transfer pricing should be evidenced or justified is prescribed. Non-compliance could of course lead to penalties.

Transfer Pricing has developed into a science or an art (with specialists consulting only in this area), the artist sharing DNA with an entrepreneur (or business expert), an economist (understanding economic flows), a tax expert (understanding the detail of the tax law), and a supply-chain expert. The first step in painting the picture is to prepare the canvass, which needs to be filled with an in-depth understanding of the nature of the group of companies that transact cross-border. A thorough understanding of the industries in which these group entities operate is very important, as this forms the basis to find comparable pricing between unrelated parties. The segmentation of the businesses deserves special attention and could include segregating manufacturing, distribution, etc. Identifying group transactions such as intercompany (and cross-border) funding or finance, management services, and brand or intellectual property related items is fundamental. Transfer Pricing legislation then basically requires that a number of exercises be completed. The first being to compile a Master File. The Master File belongs to the HQ or Group Holding company. The Master File also serves to house the data, analyses, and detail of the group’s companies in other jurisdictions. Benchmarking studies are used to verify or benchmark the pricing of similar transactions between unrelated parties in comparable circumstances. Benchmarking studies requires solid experience in what to look for, the countries or companies to benchmark against, and also alignment of the products or services being compared to the data set. Most (if not all) benchmarking studies require the use of a data search machine, to ensure that the data used is of adequate size and comparability that it will substantiate the researcher’s intuitive direction and conclusion, given the knowledge of the industry and offerings. A Local File must also be compiled. The Local File contains the data, analyses, and detail of that country’s cross-border trading companies in the group. Various methods of comparative data analyses can be used, but the method/s chosen must be appropriate given all the factors, and its use must be justified. The final requirement is the completion of a Country-by-Country-Report (CbCR), which includes relevant data of the Group Company and companies in the group.

SARS, as early as 1999, issued a comprehensive Practice Note dealing with section 31 of the ITA and determination of taxable income arising from international transactions. In 2017 SARS issued a statement in terms of section 25 of the Tax Administration Act, 2011 (TAA) on persons required to submit returns. In terms thereof a resident Reporting Entity (and in certain instances a Constituent Entity) must submit a Master File, Local File, and CbCR. A resident person who’s total potentially affected transactions for a year of assessment (before set-off) exceeds or is expected to exceed R100 million must submit a Master File if the ultimate holding company of the Group in which that person is a member, is a resident, or if a Master file is prepared by another entity in the Group of which that person is a member; and a Local File. These returns are required to be submitted, depending on the filing required, either within 12 months form the last day of the Reporting Fiscal Year, or 12 months from the financial year end of that person.

Transfer Pricing, if not already, will in the years to come (perhaps together with Indirect Taxation, especially VAT) be one of the major focuses in the tax world of multinationals.

 Continuing Education Questions

QUESTIONS SHEET

Mark
 
1. The price charged for shoes must be consistent with which standard? 1
2. The price is determined through ___________? 1
3. Name the 2 key Transfer Pricing Guidelines. 2
4. What are the 5 well-known TP methodologies? 5
5. Where does the 6th method come from? 1
6. What does the 6th method affect? 1
7. When contract manufacturing is done between the US and China for shoes, what TP method is usually used? 1
8. When a full-risk manufacturer is set up by the US in France, what does the US supply? 1
9. Continuing question 8, what does France pay? 1
10. US then starts to manage all its subsidiaries world-wide providing general administration functions, human resources, legal and other functions.  What are these services called in TP? 1
11. In the case study, those services are reflected as being charged using which method? 1
12. Lecturer Solomon Choge distinguished between 2 types of management services between associated companies:

_________  value services

_________  value services

2
13. In dispute resolution, double tax treaties have which procedure that taxpayers can use to get 2 competent authorities to co-operate and find a solution? 1
14. At the end of a TP audit, what information should you expect from Revenue Authorities? 3
TOTAL MARKS 22