Tax and transfer pricing: Determining the meaning of ‘associated enterprises’ in South African domestic law

Author Reinhard Rudd

ISSN: 1996-2177
Affiliations: Senior Lecturer, School of Accountancy, University of the Witwatersrand, Johannesburg
Source: South African Law Journal, Volume 137 Issue 3, p. 479-500


Section 31 of the Income Tax Act 58 of 1962 has been amended so that the transferpricing provisions apply not only to ‘connected persons’, but also to ‘associated enterprises’ as defined in art 9 of the Model Tax Convention on Income and Capital of the Organisation for Economic Co-operation and Development (‘OECD MTC’). A question that arises is how ‘associated enterprises’ should be interpreted in the context of South African domestic law. Several difficulties arise regarding the interpretation. First, the purpose of art 9 of the OECD MTC is unclear, making it difficult to determine how it should be interpreted. While some are of the view that it is a charging provision in its own right, others see it as a provision that merely allows for domestic transfer-pricing rules to be applied. Secondly, neither the MTC nor its Commentary provides any detailed guidance about how the definition of associated enterprises in art 9 should be interpreted. In light of art 3(2), another difficulty that arises is whether art 9 should be interpreted in a treaty context, or with reference to domestic law. In light of the uncertainty regarding the interpretation of art 9, it is recommended that the associated enterprises definition not be used as a basis for broadening the scope of s 31.