A shock wave on the cross-border supply chain caused by the pandemic affected the accounting of transfer pricing. Covid-19 is a major crisis that hit the tax, financial market and business operations across the globe.

Transfer pricing is an accounting and taxation practice that allows for pricing transactions internally within businesses and between subsidiaries that operate under common control or ownership. The transfer pricing practice extends to cross-border transactions as well as domestic ones.

In an interview with Michael Hewson, founder and director of Graphene Economics™, a specialist African transfer pricing advisory firm. We discussed the effect of the pandemic on transfer pricing processes.

Technology

The functioning of many businesses during the beginning of the pandemic was dependant on their online presence, those businesses that set up their online shops as quick as they could be able to combat the physical restrictions.

“There is a lot that needs to be considered when doing business online. The costs and processes are different from the normal ones and that influenced the pricing of goods and services. Anyone involved in transfer pricing had to learn the technology behind the selling of the goods and services to help determine the price which involved a different process and new law applications as opposed to old ones,” Michael said.

Taxation

  • High revenue collection
  • Big increase in audit numbers
  • New tax laws
  • Digitisation of tax collection
  • Transfer pricing compliance

The Organization for Economic Cooperation Development (OECD) released a guideline on transfer pricing in relation to these developments. Although the guideline is generalised, it serves as a foundation for clearer rules to materialize.

The South African Revenue Service (SARS) is set to launch a pilot phase of an advance pricing agreement (APA) program, this could make way for better transfer pricing laws and processes to cater for these new developments.

The prospect of further developments on the processes and laws surrounding transfer pricing is highly probable. Although transfer pricing is a global concern, accounting professionals need to ensure compliance and care when dealing with transfer pricing.