For most South African companies, the first time SARS looks at their transfer pricing is not an audit. It is the ITR14, the annual company income tax return. The transfer pricing sections of the return feed SARS’s risk engine, so careless answers can trigger questions that good documentation would have avoided.
Key points
- The transfer pricing sections apply to any company that entered into a transaction with a connected person covered by section 31(1)(a), whatever its size.
- SARS asks for the types and values of cross-border connected-party transactions and the jurisdictions involved.
- Supporting questions ask whether the transactions are documented and whether documentation thresholds are met.
- Your answers must agree with your financial statements, agreements and transfer pricing documentation.
Who must complete the transfer pricing sections?
Since SARS expanded the return in 2016, the transfer pricing sections must be completed whenever the company has entered into any transaction, operation, scheme, agreement or understanding with a connected person as described in section 31(1)(a) of the Income Tax Act. In practice, that means any cross-border dealing with a connected person: buying or selling goods, services, management fees, royalties, loans or guarantees. There is no minimum value for answering these questions.
What the ITR14 asks
The exact wording changes from time to time, so always work from the current SARS guide, How to complete the Income Tax Return (ITR14) for Companies. Broadly, the return asks for:
- Transactions by category: amounts paid or payable to, and received or receivable from, connected persons, split into categories such as goods, services, royalties and financial assistance.
- Jurisdictions: the number of countries involved for each category and details for the largest jurisdictions by value.
- Financial assistance: loans and other funding to or from connected persons.
- Supporting information: questions about whether the transactions are supported by transfer pricing documentation, whether the company is required to keep or submit the additional records, and whether any transfer pricing adjustments were made.
Why the answers matter
SARS uses these disclosures to decide which taxpayers to examine. A large management fee paid to a low-tax jurisdiction, a loss-making distributor or a “no” to whether transactions are documented will all stand out. Answering “yes” to documentation when none exists is worse: it damages credibility and can undermine a reasonable care defence if penalties are later considered.
Common mistakes
- Netting amounts: disclosing the net balance with a group company instead of the gross amounts paid and received.
- Wrong categories: recording a management fee as a cost recharge, or a guarantee fee as interest.
- Inconsistency: figures that do not reconcile to the annual financial statements or the local file.
- Forgetting financial assistance: overlooking interest-free loans, guarantees or long-outstanding intercompany balances.
- Answering on autopilot: rolling forward last year’s answers when the business has changed.
How to prepare
- Extract all connected-party transactions from the general ledger and classify them by type and counterparty country.
- Reconcile the totals to the related-party note in the financial statements.
- Check the R100 million aggregate threshold, without offsetting, to confirm whether master file and local file obligations apply. Our guide to transfer pricing documentation requirements in South Africa explains the thresholds.
- Confirm that every material transaction is covered by an agreement and by your transfer pricing policy.
- Have someone who understands transfer pricing review the answers before submission.
The ITR14 must be submitted within 12 months of the company’s financial year-end, so there is time to do this properly. A short pre-filing review is one of the most cost-effective things a group can do. Impact offers ITR14 transfer pricing reviews as part of its compliance service, or as a stand-alone check.
Frequently asked questions
Do small companies have to complete the transfer pricing sections?
Yes. If the company has cross-border transactions with connected persons, the sections apply regardless of size. Only the master file and local file obligations depend on the R100 million threshold.
What if we discover an error after filing?
You can request a correction of the return. It is better to correct an error yourself than to have SARS find it, and a correction should be supported by a short explanation and the revised calculations.
Does answering “no documentation” lead to an audit?
Not automatically, but it raises the company’s risk profile. The better approach is to put proportionate documentation in place so you can answer accurately and confidently.
