Transfer Pricing 101 - Why It Matters in a Global Economy
TRANSFER PRICING 101 📚What Is It? Globalisation has led to increased access to international markets, broadening the scope of economic activities between countries. As nations engage in cross-border trade, they bring with them diverse tax systems and legal frameworks. This diversity often creates loopholes that multinational enterprises (MNEs) can exploit to maximise profits, often at the expense of national tax revenue. This is where Transfer Pricing (TP) enters the picture. TP refers to the pricing of goods and services exchanged between related companies (where another company holds at least 20% equity and voting rights), such as those within an MNE. The point of contention here is not that these entities trade with each other, but rather the prices at which they do so. In South Africa, TP was previously governed by Section 31 of the Income Tax Act. While Section 31 still applies, it has been amended to align with Article 9 of the Organisation for Economic Co-operation and Deve...