A benchmarking study is only as good as its data. Many South African groups prepare a study once and keep relying on it for years, which leaves them exposed when SARS asks for current evidence. The general rule is a full new comparable search every three years, with the comparables’ financial data updated every year, as long as the business has not changed.
Key points
- The OECD Transfer Pricing Guidelines allow the database search to be refreshed every three years if operating conditions are unchanged.
- The comparables’ financial data should be updated every year.
- A restructuring, a new transaction or a material change in results calls for a new search sooner.
- South African documentation should reflect the year being tested, so stale studies weaken your position.
What the OECD Guidelines say
Paragraph 5.38 of the OECD Transfer Pricing Guidelines says that, to reduce the compliance burden, tax administrations may accept that the database searches supporting a local file are updated every three years rather than annually, provided operating conditions remain unchanged. It adds that the financial data of the comparables should nonetheless be updated every year to apply the arm’s length principle reliably.
Paragraph 5.37 also expects the master file, local file and functional analysis to be reviewed every year to confirm they are still accurate. In other words, the three-year cycle applies to the search itself, not to the rest of your documentation.
How this applies in South Africa
SARS uses the OECD Guidelines as its main reference point, and its record-keeping requirements expect the comparable data and methods used for the year to be documented. A study whose search is four or five years old, or whose financials have not been rolled forward, is much easier for SARS to challenge. If you need a refresher on what must be kept, see what a transfer pricing benchmarking study involves.
A practical update cycle
- Year 1: full functional analysis, new database search, screening and arm’s length range.
- Year 2: confirm the facts have not changed, update the comparables’ financial data, check that each comparable is still independent and active, and recalculate the range.
- Year 3: repeat the year 2 roll-forward.
- Year 4: start the cycle again with a new search.
When you need a new search sooner
- The South African entity takes on new functions or risks, or gives some up
- A restructuring, acquisition or disposal changes the group
- A new type of intercompany transaction starts
- The tested party’s results move well outside the existing range
- Several comparables are acquired, delisted or stop filing accounts
- Market conditions change sharply, as they did during the COVID-19 pandemic
Single-year or multi-year data?
Most studies compare the tested party with comparables over several years, often three, to smooth out short-term fluctuations. Whatever approach you use, apply it consistently from year to year and explain it in the local file. Switching between single-year and multi-year analysis only when it suits the result is a red flag.
What to do if your study is out of date
Do not wait for SARS. Start with a quick review of whether the facts have changed and how old the search is. In many cases a roll-forward is enough. Where it is not, a new search now costs far less than defending an outdated study in an audit.
Impact can review your existing study and tell you whether it needs a roll-forward or a full refresh. Find out more about our benchmarking studies.
Frequently asked questions
Does SARS formally accept the three-year approach?
SARS has not published a separate South African rule on update frequency. Because it follows the OECD Guidelines, the three-year search cycle with annual financial updates is the accepted practical standard, provided the facts have not changed.
Can we use another group company’s study?
Only if the functions, risks and transactions are genuinely comparable to the South African entity’s. Usually the study needs to be tailored.
How long does a roll-forward take?
Much less time than a new study, because the search strategy and screening already exist. The main work is updating financial data and checking that comparables remain valid.
