SARS has released its much-anticipated additional guidance on the Advanced Pricing Agreement (APA) programme, complementing the legislation issued in 2023. The guidance sets out the conditions under which multinationals may participate in the pilot programme. Across several separate notices, SARS addresses the following key areas:
- persons eligible to apply;
- fees payable;
- rejection of an application;
- requirements for processing an application;
- information to be contained in a preliminary application; and
- procedures and guidelines for the implementation and operation of the APA programme.
While the pilot programme is a positive step for large taxpayers seeking certainty, the criteria for acceptance are narrow. To be eligible, an applicant must have turnover exceeding ZAR 50 billion in the year of assessment immediately preceding the year in which the application is submitted. The programme is also limited to transactions involving the purchase and sale of goods and the importation of services, with expected values exceeding ZAR 1 billion for goods and ZAR 300 million for services. As a result, many multinationals are likely to fall outside the scope of the pilot programme.
SARS also appears to be targeting multinationals that are prepared to make a significant commitment to obtaining certainty. The fee structure for the pilot programme is substantial. The initial pre-application consultation fee is ZAR 100,000, followed by a further ZAR 1 million cost-recovery fee for processing the application. This amount is payable in tranches, beginning with an initial deposit of ZAR 200,000. SARS may also request additional fees to cover ancillary costs and all fees are non-refundable.
A key point to note is the basis on which SARS may reject an application. Some of the listed criteria, such as whether an issue is “frivolous or vexatious”, are inherently subjective. Given the complexity of transfer pricing, it remains to be seen how these criteria will be applied in practice. The pilot programme also excludes applications relating to issues that have already been subject to dispute, which limits the ability to obtain certainty for future years following an audit and adjustment.
The information requested is largely as expected and the procedures and guidelines for implementation broadly follow international practice. Applicants should, however, be aware that SARS may reject an application if the competent authority of the other country is not prepared to enter into negotiations. This is particularly important given that the fees are non-refundable.
The overall takeaway is that the pilot programme presents a welcome, though limited, opportunity for multinationals to obtain certainty regarding the transfer pricing of certain transactions in South Africa. That opportunity is, however, constrained by strict entry criteria, a narrow transaction scope and non-refundable costs. Any applicant should therefore approach the process carefully and seek clear procedural alignment with SARS to help protect its investment and support timely completion.
