Tax is the price we pay for civilisation and transfer pricing is the price we pay for globalisation. Over the years, transfer pricing has been acknowledged as the commercial price setting for transactions between entities of the same group. Getting the commercial terms wrong resulted in tax adjustments, and interest and penalties where applicable. Such tax adjustments remained devoid of untoward intent. However, in recent times transfer pricing has attracted much negative sentiment to the point that it is now viewed as the criminal child of tax - an anti-avoidance mechanism perpetrated with defined and deliberate intent to not only avoid tax but also undermine developing economies. As a result, transfer pricing is now a higher priority for NGO's and governments.

South Africa has, for many years, been the leader in transfer pricing audits among the African countries. This has now changed with many other countries such Nigeria, Ghana, Kenya, Tanzania, Mozambique, to name a few, coming to the fore, having made a concerted effort to develop transfer pricing capability. In addition, with increased information sharing and tax training across Africa, tax collection from transfer pricing audits has become more prevalent on the continent and this will only continue to increase. We are already observing multinationals in some countries being subjected to invasive tax collection techniques. In Tanzania, for example, a large mining company recently received a USD 190 billion tax assessment. The magnitude of the assessment demonstrates the political will of governments to address transfer pricing non-compliance where they perceive this to be taking place. We can expect to see this increased effort translate into aggressive assessments.

Closer to home, changes at SARS have not resulted in a reduced focus on transfer pricing as a means of enhancing revenue collection. In fact, it is observed that the SARS are becoming more innovative, applying a diversified audit approach to transfer pricing assessments in order to improve revenue collection. Multinationals need to take cognisance that transfer pricing audits are highly complex and because of that complexity they can be very invasive, intense and disruptive to business operations. Further, experience has shown that when SARS commences with a transfer pricing audit, the inquiry is not restricted to open tax years but very often goes back to prescribed years as well.

Information remains key to any transfer pricing investigation and many multinationals make the mistake of not fully understanding what they are submitting to the revenue authority, the context of such submissions, the potential ways that it could be interpreted by a revenue official and most importantly that once submitted, such disclosures cannot be retracted. It is therefore extremely valuable to have an experienced and skilled transfer pricing advisor assess your transfer pricing compliance. Yet, despite the heightened scrutiny, increasing complexity of tax legislation, the onerous nature of compliance and the risks of getting it wrong, most tax departments are severely constrained in their flexibility to bring in skilled advisors.

In an era where the traditional approach to transfer pricing compliance no longer suffices and where deep specialist knowledge and out of the box thinking is essential, multinationals will need to re-evaluate if the risk of taking a reactive "wait and see" approach is more cost effective than a proactive one.