Public notice
Qualifying factors
Documentary requirements

Section 29(1)(b) of the Tax Administration Act (28/2011) provides that a party must keep the records, account books and documents specifically required by the South African Revenue Service (SARS) commissioner under a public notice. On October 28 2016 the long-awaited final public notice regarding the record-keeping requirements pertaining to transfer pricing transactions was published under the powers afforded to SARS in Section 29(1)(b) of the act.(1)

Public notice

Previously, there was uncertainty over whether there was a formal requirement to keep prescribed transfer pricing documentation. Following the public notice's issuance, specific organisations must prepare and keep certain transfer pricing documentation for years of assessment commencing on or after October 1 2016. This is not an overly onerous legislative requirement and is in keeping with international standards.

While the public notice clarifies the additional record-keeping requirements for transfer pricing transactions, these requirements may increase compliance costs for certain taxpayers. Further, taxpayers risk SARS auditing them and finding that they have failed to keep the required records.

Qualifying factors

The public notice underwent extensive public consultation resulting in several drafts, workshops and submissions to the National Treasury regarding concerns raised by various interested parties. One of the main discussion points was the qualifying factors for parties required to comply with the additional record-keeping requirements.

Initially, the draft public notice broadly applied to taxpayers with a consolidated South African turnover of R1 billion or more. As a result of public consultation and discussions, the threshold was revised to include only parties that have entered into a "potentially affected transaction" where the "aggregate of the person's potentially affected transactions for the year of assessment exceeds or is reasonably expected to exceed the higher of 5% of the person's gross income or R50 million".

After additional public consultation and discussions, the qualifying factors were further revised. Paragraph 2 of the schedule to the public notice is therefore important, as it sets out the final parameters of parties required to keep the specified records, account books and documents stipulated in the public notice. In its final form, Paragraph 2 states that:

"A person must keep the records specified in paragraph 3 and 4 if the person:

1. has entered into a potentially affected transaction; and

2. the aggregate of the person's potentially affected transactions for the year of assessment, without
offsetting any potentially affected transactions against one another, exceeds or is reasonably expected to exceed R100 million.

While the qualifying threshold has been revised several times during the public consultation process, it remains to be seen the extent to which, in practice, taxpayers will fall within the public notice's ambit.

Documentary requirements

While the public notice's documentary requirements are extensive, some of the requirements pertaining to taxpayer structures and operations include:

  • a description of the party's ownership structure, as well as a description of all foreign connected parties with which the party is transacting and the details and nature of the connection; and
  • a summary of the party's business operations, including:
    • a description of the business;
    • an organisational chart showing the details of the senior management team; and
    • the major economic and legal issues affecting the profitability of the party and the industry.

Paragraph 4 of the public notice sets out further detailed documentary requirements for a qualifying party in respect of any potentially affected transaction that exceeds or is reasonably expected to exceed R5 million in value. Paragraph 5 of the public notice sets out another broad requirement, placing the obligation on a party that has entered into a potentially affected transaction to which Paragraph 4 does not apply (ie, where it does not exceed the monetary threshold) to keep certain records that enable the party to ensure, and SARS to be satisfied, that the transaction has been conducted at arm's length. Paragraph 6 deals with records kept by connected parties and Paragraph 7 provides for SARS' discretion to allow a taxpayer to make alternative record-keeping arrangements in respect of certain specific high-volume transactions.


During the consultation process, industry role players raised concerns regarding the interaction between Practice Note 7 – which was issued several years after the transfer pricing rules were introduced into South African tax legislation – and the new public notice. Practice Note 7 specifically set out certain guidelines pertaining to the documentary requirements regarding transfer pricing transactions. In this regard, a briefing note was published together with the public notice, which states that the public notice's schedule will override Practice Note 7.

A further concern was that the public notice failed to refer to the master and local file requirements, as prescribed by the Organisation for Economic Cooperation and Development. The briefing note provides some clarity in that it states that:

  • such documentation must be submitted in accordance with Section 25 of the Tax Administration Act; and
  • country-by-country reports must also be submitted in accordance with Section 25 and regulations to be published by the minister of finance.

Further publications regarding this aspect should therefore be anticipated.


Taxpayers should be aware that SARS will make the necessary transfer pricing adjustments as per Section 31 of the Income Tax Act (58/1962) in the event that they cannot produce sufficient documentation to prove that transactions were conducted at arm's length. While it does not appear possible at present that a non-compliance penalty will be imposed if a taxpayer does not comply with the public notice, Section 234(e) makes it a criminal offence for taxpayers to fail or neglect to retain records as required in the Tax Administration Act. Therefore, it is important for taxpayers to seek professional advice and avail themselves of the details of the public notice to ensure that, to the extent that they fall within its application, they comply with the additional record-keeping requirements.

For further information on this topic please contact Jerome Brink at Cliffe Dekker Hofmeyr by telephone (+27 21 410 2500) or email ([email protected]). The Cliffe Dekker Hofmeyr website can be accessed at


(1) The public notice is available here.