[fullwidth background_color=”” background_image=”” background_parallax=”none” enable_mobile=”no” parallax_speed=”0.3″ background_repeat=”no-repeat” background_position=”left top” video_url=”” video_aspect_ratio=”16:9″ video_webm=”” video_mp4=”” video_ogv=”” video_preview_image=”” overlay_color=”” overlay_opacity=”0.5″ video_mute=”yes” video_loop=”yes” fade=”no” border_size=”0px” border_color=”” border_style=”” padding_top=”20″ padding_bottom=”20″ padding_left=”” padding_right=”” hundred_percent=”no” equal_height_columns=”no” hide_on_mobile=”no” menu_anchor=”” class=”” id=””][fusion_text]In 2015, SARS declared that transfer pricing will be a key focus area. According to SARS some multi nationals and other foreign related-parties transact on a basis that may lead to the erosion of the South African tax-base. SARS is under enormous pressure to meet their R1 trillion collection target and so no stone is being left unturned.
One way we already see SARS doing this is by viewing transfer pricing risks through the lens of the Customs and Excise Act. The Act requires that importers must declare their relationship with their exporter on their bill of entry (SAD 500). It is as a serious offence for related parties to not declare the relationship and serious offences carry serious penalties. (The definition of a related party in the Customs Act is broad, so this needs to be looked at closely, as parties can be related as defined by the Act, but not be related in the more conventional sense of the word).
So how does the Customs value connect to the transfer pricing debate?
Anything that increases the Customs value in South Africa will also increase the costs associated with the purchase and therefore lowers the profit earned in South Africa. Anything that lowers the Customs value of course reduces the Customs duty liability and the VAT collected on that transaction and so we have this seesaw relationship between transfer pricing and Customs valuation. SARS understands this relationship very well, which is why we see more multi-disciplinary teams investigating valuation and transfer pricing issues.
From disclosure to determination
As mentioned above, it is a serious offence to tell SARS you are not related, when in fact you meet the definition of related in terms of the Customs Act. However, once you properly declare your relationship on your bill of entry, you are pushed into a process to have your relationship with your supplier evaluated by SARS and to ultimately have SARS issue a view on this relationship. This view is known as a value determination and is accompanied by a number (known as a value determination number, or VDN) that is to be used when transacting with the supplier they issued the determination on. The terms of this VDN are binding and not using a VDN once its been issued is also a serious offence.
Why is the VDN important?
If SARS determines, for whatever reason, that the price you pay for the goods you import is lower because of your relationship with your supplier or does not reflect all of the costs that should be contained in this value, then it can apply an upliftment. This upliftment is implemented by SARS using the VDN they have issued.
Advanced pricing arrangements
SARS also indicated that they are considering the implementation of Advance Pricing Arrangements in the near future. Once this has been implemented taxpayers will be able to engage SARS before entering into transactions with foreign related parties.
Worried about Customs valuation?
If you have any questions about Customs valuation, please contact us on firstname.lastname@example.org[/fusion_text][/fullwidth]