On January 19, the South African Revenue Service (Sars) released its proposed draft amendments to the rules of the Customs and Excise Act, 1964, which take into account the effects of transfer pricing adjustments on customs valuation. Comment on the draft amendments is due by February 9 and must be recorded on Sars’ comment sheet.

Transfer pricing is a tax procedure that allows for the establishment of prices for goods and services exchanged between subsidiaries or affiliates of the same multinational enterprise. Customs valuation is a customs procedure that is used to determine the customs value of imported goods.

In addition to the amendments, Sars said in a media release that the rule amendments will provide clarity and certainty for multinational entities on how to account for their transfer pricing adjustments on previous customs declarations. The amendments will ensure that multinational entities are compliant with their customs obligations. The price fluctuations of goods and services delivered by multinationals have a knock-on effect and impact on their profits and tax liability. The multinationals have an obligation to adjust the transfer pricing payment retrospectively to ensure compliance.

The draft rules provide for the manner in which bills of entry may be adjusted where the customs value is affected by transfer pricing adjustments, as contemplated in the Organisation for Economic Cooperation and Development transfer pricing guidelines for multinationals and tax administrations. Where an exporter has amended an invoice by issuing an amended invoice or a debit or credit note to reflect any transfer pricing adjustment, the importer must, within the stipulated timeframe, disclose the circumstances of such a transfer pricing adjustment to Sars.

Such disclosure must be made by submitting a letter of notification on the letterhead of the importer by email to an email address indicated on the Sars website, or by hand to any customs office.

The letter must be accompanied by a letter of authorisation in respect of submission by a representative in circumstances where the notification is submitted by a registered agent, clearing agent or other representative; any relevant amended invoice, debit note or credit note issued by the exporter; the applicable transfer pricing policy and compensation calculation detailing how transfer prices are determined and adjustments are to be made; a spreadsheet reflecting the numbers of all bills of entry affected by changes in the customs value declared due to the relevant transfer pricing adjustments; the tariff heading/tariff subheading of the affected goods; the value of the affected goods; the adjustment factor used to determine the adjustment to the value as reflected in the transfer pricing policy; the effect of the changes indicated on the customs duty and value-added tax (VAT) in respect of the relevant bill of entry; and a declaration by the importer or that importer’s authorised representative that the particulars provided are true and correct; purchase and sale agreements; distribution agreements together with all amendments and annexures; signed annual financial statements for the relevant adjustment period; segmented financial data relating to the various divisions within the importer’s business; royalty and licence fee agreements; a summary of VAT 201 returns (it is a form prescribed by Sars, where VAT vendors declare their input tax and output tax) for the adjustment period; and any other relevant documentation required for purposes of validating the retrospective adjustments and assessing the impact of such adjustments on the customs value, duties and VAT payable.

An importer who has submitted a notification in terms of the proposed rules must comply with any further instructions issued by Sars to such importer in relation to further information to be supplied; for the payment of any duties and VAT payable to Sars; or claiming any refund that may be payable to the importer.

It might well be best to conclude with the last word on tax compliance from the Sars commissioner: “This is another step to make it easy and simple for taxpayers and traders to comply voluntarily with their obligations. Legislation allows the organisation to outline the rules and procedures that promote compliance in unambiguous terms and strengthen the tax and customs ecosystem that affects our stakeholders, nationally and internationally.”