South Africa launches Advance Pricing Agreement (APA) pilot programme

This changed in 2023 when the first South African transfer pricing case was decided at the tax court level (the ABD case). While it was in a lower court, and did not create a precedent, the case did create an interesting viewpoint of SARS’s approach. While the case was decided in favour of the taxpayer, the ruling does not appear to have deterred SARS and it is expected that there will be more transfer pricing cases in the future.

The lack of clarity has prompted many practitioners over the years to call for an advanced pricing agreement (APA) programme to help taxpayers plan their affairs with the comfort of knowing how their transfer pricing agreements will be treated. Previously, these calls were not successful; the speculated reasoning was that there simply was not enough skilled experts in South Africa to implement an APA programme. 

With the current attention given to transfer pricing disputes by SARS, it was welcome news that the revenue service was launching a pilot APA programme effective 01 September 2026. The pilot programme gives qualifying multinationals the opportunity to agree with SARS on their transfer pricing methodology and a treaty partner before transactions are tested on audit. 

The pilot is bilateral or multilateral only, and operates alongside South Africa's arm's length rule in Section 31 of the Act, which closely follows the OECD Transfer Pricing Guidelines. An APA is available only where South Africa has a double tax agreement with the counterparty jurisdiction that contains both an associated enterprises article (Article 9) and a mutual agreement procedure (Article 25). Unilateral APAs are not on offer.

Access is deliberately narrow. The South African applicant must be tax resident, tax compliant, and have turnover above ZAR 10 billion in the year before applying (reduced from the ZAR 50 billion originally proposed). Only distribution, manufacturing, and intragroup services transactions qualify, subject to annual values of at least ZAR 1 billion for goods and ZAR 300 million for services. Financial assistance and intellectual property transactions are excluded for now.

The process will be familiar to readers who have used the OECD Forum on Tax Administration model. It starts with a pre-filing consultation, followed by a formal application, a project plan agreed with SARS and the foreign competent authority, and competent authority negotiations from which the taxpayer is excluded. Rollback to up to three prior years may be requested, provided it does not reduce taxable income or increase an assessed loss.

SARS also has broad grounds to decline an application, including where the arrangement lacks commercial substance, appears tax-motivated, raises general anti-avoidance issues, or is already the subject of an audit dispute, objection, or voluntary disclosure.

For groups with significant South African operations, the APA route offers a welcome alternative to lengthy audits and mutual agreement procedures. Given the limited capacity in the pilot, early engagement with SARS is likely to be key.

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Graeme Saggers is the Head of Tax for Nolands. He holds a BCom (Hons) degree from Rhodes University and an MCom (Tax) degree from the University of Cape Town. Graeme is a Chartered Accountant and Chartered Tax Advisor. He joined Nolands in 2011 as an Audit Manager and was appointed as a Tax Partner at Nolands in September 2014. Graeme is Regional Vice Chair Middle East Africa of GGI’s ITPG.