The basic rule is simple: related parties should transact as if they were independent parties dealing with each other in the open market. This is the arm’s length principle, central to section 31 of the Income Tax Act 58 of 1962 and the OECD Transfer Pricing Guidelines. The difficulty is proving that you did exactly that.
The arm’s length principle does not produce a single formula for every related-party transaction. The appropriate analysis depends on the nature of the transaction, the functions performed, assets used, risks assumed and economic circumstances.
Local-file requirements apply where potentially affected transactions exceed, or are reasonably expected to exceed, R100m in a year of assessment, with transaction-specific records required above R5 million. Country-by-Country reporting and a master file may also be required if further thresholds are met.
The R100m threshold is not a safe harbour: section 31 can apply below it, so businesses should always retain sufficient records to support their transfer pricing position.
Intra-group management fees require scrutiny not only of the amount charged, but of the underlying service. The analysis should establish what was provided, who provided it, why the South African company required it and what benefit it received.
This reflects the OECD’s benefit test: whether an independent enterprise, in comparable circumstances, would have been willing to pay for the activity or would have undertaken it itself. A management agreement and invoice are not, by themselves, evidence that the fee is arm’s length.
Businesses should retain contemporaneous evidence of services provided, together with the methodology used to determine the charge. SARS heavily scrutinises these arrangements where a charge relates solely to the interests of the parent or shareholder, or where the South African company already performs substantially similar functions.
For related-party imports, there are two distinct considerations: whether the price satisfies the arm’s length principle for income-tax purposes, and whether the declared value is acceptable under customs valuation rules.
This becomes particularly important with transfer pricing true-ups. If goods were imported at R100 per unit but a year-end adjustment increases the final price to R110, the business needs to consider whether its customs declarations also require adjustment.
In March 2026, SARS published revised draft amendments to the Customs and Excise Rules dealing with bills of entry where the declared customs value is affected by a transfer pricing adjustment. The proposed process contemplates recalculating customs value, customs duty and VAT, including refunds where amounts were overpaid.
The issue also works in reverse for exports. A South African company selling to a related foreign company should demonstrate why its export price is arm’s length. An artificially low export price can shift profits offshore and trigger a section 31 adjustment.
SARS has identified intra-group financing as a transfer pricing risk. For a related-party loan, both the amount of debt and its cost must be considered. A loan can therefore be non-arm’s length because the borrower has been over-funded, even if the interest rate appears commercially reasonable.
The analysis should consider what an independent lender would examine: creditworthiness, the amount and purpose of funding, term, repayment profile, security, currency and prevailing market conditions.
A practical warning sign is a loan agreement signed after the money was advanced, with no meaningful repayment terms or an interest rate selected simply because it is convenient for the group.
SARS’s APA programme provides greater certainty on the transfer pricing treatment of qualifying cross-border related-party transactions. An APA establishes in advance the transfer pricing approach applicable to specified transactions for an agreed period.
On 7 August 2026, SARS issued its final public notices and external guide, following draft notices published in April 2026. The pilot accepts bilateral (treaty-based) APA applications only, with requests submittable from 1 September 2026.
The programme targets large multinational groups - applicants must have standalone turnover exceeding R10bn. Distribution, manufacturing and intra-group services qualify subject to value thresholds, while financial assistance and the creation of intangible property are excluded. An APA may run for up to five consecutive future years, with a possible rollback of up to three prior years.
For large groups with substantial recurring related-party transactions, an APA may provide a valuable mechanism for reducing transfer pricing uncertainty and potential disputes.
Need advice on a cross-border transaction? If you need assistance with related-party financing, management fees, imports, exports, or the preparation of transfer-pricing documentation, please contact us:
Author name: Amy Moutinho
Contact Number: 012 682 8800
Email Address: az.oc.tbas-aixen@om.yma
