Translation of transfer pricing adjustments in South Africa: A seemingly insignificant detail

Author: Michelle van Heerden

ISSN: 1996-2185
Affiliations: Senior Lecturer, Department of Accountancy, University of Johannesburg
Source: South African Mercantile Law Journal, Volume 35 Issue 2, 2023, p. 190 – 212


The South African rand is one of the most volatile currencies in the world — at times the most volatile. To this is added a further area of uncertainty, namely the tax implications relating to transfer pricing. Section 31 of the South African Income Tax Act does not have any specific foreign currency translation rules. The general rule in s 25D of the Income Tax Act is therefore applicable, which provides for the translation of foreign currency to rand using the spot rate. However, given the nature of transfer pricing transactions, it raises the question whether the spot rate is indeed appropriate. The purpose of the study was to investigate South Africa’s translation rules and to seek guidance from an international perspective. The research design was non-empirical, adopting an interpretative paradigm, together with a doctrinal research methodology. The conclusion of this study is that the translation rules concerning transfer pricing adjustments have seemingly been overlooked. The study recommends a legislative amendment of s 31 and proposes that transfer pricing adjustments are converted using the average rate of exchange for the year of assessment to which the adjustments relate, as such an amendment will lead to certainty, equity and convenience.