Sars taps Moody’s Analytics for transfer pricing crackdown

Moody’s Analytics UK has won a contract with the South African Revenue Services (Sars) to provide the agency with transfer pricing benchmark tools, as the agency moves to close loopholes allowing multinational companies to short-change the fiscus. A benchmarking study, the most critical part of any transfer pricing analysis contained in a compliance or policy document, is mainly used to test the arm’s length nature of the connected persons’ transactions. Canny multinational firms use the technique of transfer pricing to shift profits out of countries where they operate, into tax havens.

This can be done through a subsidiary of a multinational in a tax haven charging artificially inflated prices from a sister subsidiary in a country with higher taxes — essentially moving profits out of a country where it genuinely does business to a tax haven — thus avoiding taxes. Read:EDITORIAL: No room for error in crucial Sars selection Since South Africa’s re-emergence in the international market, there has been a marked expansion of international trade and commerce, with wide-ranging changes in volume and complexity, with an increasing proportion of this international activity carried on between members of multinational companies. To tighten its transfer pricing regime, the tax agency has now acquired the services of Moody’s Analytics through a competitive process in which the company pipped UK-based Royalty Range to the post.

Moody’s Analytics, a subsidiary of the eponymous ratings agency, is expected to provide Sars with a complete solution that can provide reliable comparable data and produce benchmarking studies that can be defended in court or during litigation and audits. Sars went to market to seek transfer pricing benchmarking tools after it realised that a comprehensive transfer pricing tax audit was impossible without a benchmarking study or tool. A key issue raised by developing countries, in particular, is the scarcity in some parts of the world of the financial data necessary to carry out a comparability analysis (ie a benchmarking study). Sars has ramped up its focus on transfer pricing and is involved in several major audits that could lead to substantial adjustments.