Title page for ETD etd-07202011-164548

Document Type Master's Dissertation
Author Joshi, Divyesh Jagadischandra
URN etd-07202011-164548
Document Title Transfer pricing : a comparative study of analogous legislation in developing and developed countries
Degree MCom
Department Taxation
Advisor Name Title
Prof M Cronje Supervisor
  • trade
  • oordragspryse
  • transfer pricing
  • handel
Date 2011-04-07
Availability restricted
The world has shrunk. Business has evolved. Trade is no longer just a bilateral concept but rather a multidimensional and multifaceted organism, constantly changing. In a world where a Mauritian holding company is able to justify financially, the manufacture of its product by factories in China, its transportation by Danish shippers, its marketing by American branding agencies, its product support by Indian call centres, and its distribution across Africa at a substantial profit, revenue authorities are faced with the challenge of striking a balance between maintaining an adequate tax base while incentivising foreign direct investment. It is on the back of globalisation that the need for transfer pricing legislation is born.

Companies often structure business transactions in a manner most conducive to positive tax benefit. One such method involves the shifting of profits between associated enterprises. This results in the erosion of a tax base in one country and undue benefit in the other. Transfer pricing involves a process of adjustment where multinational corporations trade with related enterprises at prices different to armís length prices.

Determining an armís length price requires significant judgement. Careful consideration must be given to the relevant facts and circumstances surrounding the transaction. This study aims to evaluate factors which should be considered in determining an armís length price.

South African legislation outlines methods which may be used to determine an armís length price. These methods are unique to specific sets of facts and each method poses its own challenges in application. This study aims to critically evaluate such methods of calculating an armís length price.

The major risk arising from international trade with associated enterprises is that revenue authorities may adjust transfer prices, and this could result in double taxation for companies. It is therefore important for legislation in various countries to maintain some form of parity. The challenge however, is that countries often encourage foreign direct investment through favourable tax laws, and tax law is effectively modelled based on a countryís objectives and fiscal policy. In addition, multinational corporations often have their head offices in developed countries and their operating subsidiaries in developing countries. Legislation is therefore designed to take into account this demographic, in that, legislation in developed countries may be designed differently to that of developing countries. As a result transfer pricing legislation may differ from country to country. The study therefore seeks to evaluate differences between legislation in various countries, and to assess South African legislation in comparison to other developed and developing countries.

AFRIKAANS : Die wÍreld het gekrimp en besigheid het ontwikkel. Handel is nie meer net 'n bilaterale konsep nie, maar eerder 'n multidimensionele en multifavlakkige organisme wat voortdurend verander. In 'n wÍreld waar 'n houermaatskappy in Mauritius in staat is om dit finansieel te regverdig dat sy produkte in China vervaardig word, die verskeping deur Deense skepe gedoen word, die bemarking deur 'n Amerikaanse agentskap behartig word, die inbelsentrum in IndiŽ gevestig is en die verspreiding van sy produkte dwarsoor Afrika geskied, alles teen 'n aansienlike wins, is inkomste-owerhede gekonfronteer met die uitdaging om 'n balans tussen die instandhouding van 'n voldoende belastingbasis te behou en terselfdertyd direkte buitelandse beleggings aan te moedig. Dit is op die rug van globalisering dat die behoefte aan oordragspryswetgewing ontstaan het.

Ondernemings (maatskappye) struktureer dikwels hul besigheidstransaksies op 'n wyse wat positiewe belastingsvoordele inhou. Een so 'n metode behels die oorplasing van wins tussen geassosieerde ondernemings. Die resultaat van hierdie transaksies lei tot die erosie van die belastingsbasis in een land en die onverdiende voordeel in 'n ander. Oordragsprysing is die proses van aanpassing waar multi-nasionale maatskappye besigheid bedryf met geassosieerde maatskappye teen pryse wat nie op uiterste voorwaardes beding is nie.

Die bepaling van pryse wat op uiterste voorwaardes bereken is, verg merkwaardige oordeel. Deeglike oorweging moet aan die wesenlike feite en omstandighede van transaksies gegee word. Die studie beoog om die faktore te evalueer wat in ag geneem moet word by die bepaling van pryse wat op uiterste voorwaardes beding is.

Suid-Afrikaanse wetgewing beskryf die metodes wat gebruik kan word om pryse op uiterste voorwaardes te beding. Die metodes is uniek tot elke stel feite en elke metode beskik oor sy eie uitdagings in praktyk. Die studie beoog om die metodes wat gebruik word om pryse wat op uiterste voorwaardes beding bereken is, te evalueer.

Die groot risiko wat voortspruit uit die internasionale handel met geassosieerde vennote is dat die belastingowerhede die oordragspryse mag verhoog wat tot dubbele belasting kan lei. Dit is dus uiters belangrik dat die wetgewing in verskillende lande ooreenstem. Die uitdaging is egter dat verskeie lande dikwels buitelandse direkte investering aanmoedig deur gunstige belastingswette wat gebaseer is op daardie lande se doelstellingsen fiskale beleid. Ondernemings vestig dikwels ook hul hoofkantore in ontwikkelde lande en hul streekskantore in ontwikkelende lande. Wetgewing moet dus demografiese faktore in ag te neem; aangesien wetgewing in ontwikkelde lande verskil van diť van ontwikkelende lande. Dus sal die oordragspryswetgewing van land tot land verskil. Die studie poog om die verskille te evalueer in die wetgewing van verskeie lande en om die Suid-Afrikaanse wetgewing te vergelyk met diť van ontwikkelde en ontwikkelende lande.

© 2010, University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria. No part of this work may be reproduced or transmitted in any form or by any means, without the prior written permission of the University of Pretoria.

Please cite as follows:

Joshi, DJ 2010, Transfer pricing : a comparative study of analogous legislation in developing and developed countries, MCom dissertation, University of Pretoria, Pretoria, viewed yymmdd < http://upetd.up.ac.za/thesis/available/etd-07202011-164548/ >


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