Transfer pricing: South Africa is one step closer to the establishment of an advance pricing agreement (APA) programme.

During November of 2020, SARS released a discussion paper on advance pricing agreements (“APAs”), indicating its intention to have such a system introduced in South Africa (“SA”). An article, which can be accessed here, was issued by Forvis Mazars in this regard, explaining what an APA entails and why SARS is set on introducing such a programme.

One year later, during December of 2021, SARS has taken the next step in the establishment of an APA programme by issuing a high-level model and draft legislative framework for an APA unit and associated processes at SARS.

The issue of capacity constraints has previously been highlighted by Forvis Mazars as a concern. SARS referred to the possibility of outsourcing some matters relating to the APA programme on a temporary basis, to obtain the necessary skills in respect of transfer pricing. The recently issued document does not provide any further clarification in respect of potential outsourcing, but does highlight some ways in which SARS intends on addressing capacity constraints. It is indicated that a pilot APA project, accepting only bilateral APA applications, is planned for as soon as possible after the legislative framework has been put in place. SARS notes that such a pilot project would allow the APA unit at SARS to learn from other jurisdictions and expand its capacities.

The document issued by SARS also includes draft legislation which captures the essential features of the proposed APA model. It is the hope of SARS that the release of the model and draft APA legislation will not only lay the groundwork for the APA programme, but also facilitate comprehensive engagement from affected parties in order to streamline the proposed model.

The model set out in the SARS document provides a highlevel overview of the envisaged process flow, consisting of stages such as pre-application, application, processing, negotiation and finalisation. Once an APA is finalised the model also provides for implementation and monitoring of the APA as well as the potential termination, amendment or extension of such APA. These aspects of the APA programme are also provided for in terms of the draft legislation which has been included as an annexure to the document issued by SARS.

The recently issued document highlights the reasons why SARS views the establishment of an APA unit as foundational in advancing its agenda and restoring its status. The document however notes that the establishment of an APA unit at SARS has many challenges, with the main one relating to the scarcity of transfer pricing expertise in SA. In this regard, SARS notes that time and resources will be required to develop the relevant transfer pricing expertise at SARS.

The document furthermore highlights a number of aspects, relating to the APA programme, which will be managed by way of public notices being issued by the Commissioner of SARS in the SA Government Gazette. It is stated that this will provide a level of flexibility, particularly as these criteria are likely to be different during the pilot and final rollout stages. The aspects referred to include: timeframes, eligibility criteria, and relevant fees which will apply to APA applications.

SARS has requested commentary on the proposed model and draft legislation to be submitted to it by 31 January 2022. Forvis Mazars is currently considering the proposed model for SA and will be submitting commentary to SARS in this regard. 

The document issued by SARS can be accessed here.

By Malan du Toit
12/01/2022