On 1 April 2012, after a lengthy redrafting process and much
anticipation, the new South African transfer pricing rules came
into operation, applying in respect of all financial years
commencing on or after that date. The purpose of the redrafting was
to move away from the transactional based focus, where the
arm's length price for a transaction had to be determined, to a
more entity based approach, where the taxable income of an entity
has to be calculated as if all transactions were concluded on an
arm's length basis.
Regardless of which rules apply though, the fundamental
principle of transfer pricing, that is, the arm's length
principle, remain the same and must still be adhered to. In
applying the arm's length principle, the application of the
so-called four-step approach is usually recommended by the
Organisation for Economic Co-operation and Development's
Transfer Pricing Guidelines for Tax Authorities and Multinational
Enterprises ("OECD Guidelines") as well
