Customs: Draft Rule Amendments On Transfer Pricing Adjustments

• Published date: 18 March 2024
• Subject Matter: Tax, Income Tax, Transfer Pricing, Sales Taxes: VAT, GST
• Law Firm: Andersen in South Africa
• Author: Yamani Selana

The South African Revenue Service (SARS) is in the process of amending the rule to facilitate customs related submission resulting from transfer pricing adjustments ("TPA").

The South African Revenue Service (SARS) is in the process of amending the rules to facilitate customs-related submissions resulting from transfer pricing adjustments ("TPA").

Over the years, SARS has not had a formalised guide on how to disclose TPAs and on adjusting the customs declarations (bills of entry) affected. It is in this regard that SARS now seeks to amend the Rules under the Customs and Excise Act, 1964, ("Customs Act") to provide clarity and certainty for importers impacted by retrospective TPA. This process is relevant on how to account for previous customs declarations.

Retrospective transfer pricing adjustments

At the end of a financial year, multinational companies may implement transfer pricing adjustments relating to inter-company trading/transactions. Such action is ordinarily aimed at aligning with a set arm's length price in terms of a transfer pricing policy.

The traditional focus on TPAs tends to be on profits and considers income tax implications. With the implementation of year-end TPAs, there is often an unintended overlook on the customs-related implications. Such overlook(s) can have dire consequences for those entities with inter-company transactions involving the cross-border movement of goods.

The SARS has since noted the end impact of TPAs on the pricing of goods previously imported, i.e. creating retrospective customs valuation uncertainty that can result in underpayment of import VAT and customs duty. The Customs Act therefore requires importers to disclose the retrospective TPAs. Importers are further required to make submissions on the impact of such TPAs from a customs valuation, duty, and VAT perspective.

The Customs Act makes provision for the disclosure of a credit or debit note that has an impact on the value of an original invoice previously used to enter goods for import purposes. Such disclosure must be done within one month of receipt and be coupled with details of the circumstances of such adjustment. The mandatory reporting and adjustments are intended to ensure retrospective compliance and accuracy about the validity of the declared invoices, customs values, customs duty and VAT.

Failure by importers to notify SARS to the mandatory disclosure of the year-end TPA could result in retroactive invalidating of a customs declaration. SARS...