Transfer pricing sounds like one of those technical financial terms that belongs in a boardroom or a tax textbook, not in everyday conversation.
But it affects ordinary South Africans far more than most people realise.
In simple terms, transfer pricing is about the charges international companies make to their own branches in other countries.
That might not sound like your problem. But when those charges are structured in certain ways, profits that were actually made in South Africa can quietly be shifted out of the country on paper. And when profits move, tax revenue moves with them.
SARS has recently made it clear that it plans to increase investigations into companies over transfer pricing. The reason is obvious.
If large amounts of profit are being declared elsewhere instead of here, South Africa loses tax revenue.
That’s money that, in theory at least, should be funding schools, clinics, infrastructure and social support. Whether every rand is perfectly spent is another debate — but you can’t spend tax you never collect.
So what does transfer pricing actually look like in practice?
Imagine a global electronics company selling smartphones in South Africa. The local branch sells the phones, employs staff and runs the operation here. But it doesn’t “own” the design, the software or the brand. Those sit with the global head office, maybe in the US or Ireland. The head office then charges the South African branch a fee to use that intellectual property. Suddenly a slice of the South African profits becomes a royalty payment heading offshore.
The same thing happens with so-called service fees, where the local company is billed for “global management support” or IT services from abroad. It can happen through loans from the parent company, with interest flowing out of the country. It also happens through the pricing of physical goods bought from sister factories overseas. All of this falls under transfer pricing.
Transfer pricing is a normal and necessary part of how global companies operate. If billions were spent on research and development in one country, it’s reasonable that branches elsewhere contribute to those costs if they benefit.
Customs authorities also need declared prices when goods cross borders, and investors want to see which country operations are actually making money.
The trouble starts when these internal prices are pushed to extremes. A company can set fees and charges in such a way that its South African operation always looks like it barely makes a profit — or even makes a loss — while large profits appear in low-tax countries.
On paper, everything may look neat. In reality, the tax base in a country like South Africa shrinks.
For years, many of these disputes stayed behind closed doors between tax authorities and big companies. More recently, they’ve started surfacing in court.
There have been major cases where SARS issued assessments running into billions of rand, arguing that royalty rates or other internal charges were not at market levels. Even where taxpayers win on technical points, the message is clear: SARS is willing to challenge these structures aggressively.
Another red flag for tax authorities is when a multinational brand is hugely successful globally but somehow reports year after year of weak profits or losses in South Africa. Increasingly, that raises the question of whether profits are being “priced away” through internal charges.
SARS is also bringing more technology into the fight. Using data analysis and international information sharing, it can compare profit margins across countries in the same industry.
If a South African branch looks far less profitable than its counterparts elsewhere, that can trigger closer scrutiny. Tax authorities now have far more visibility across borders than they did a decade ago.
So why should you care?
Because every billion rand shifted out of South Africa through a royalty, a management fee or an internal charge is a billion rand that doesn’t form part of the local tax base. That affects the country’s ability to fund services and development.
Transfer pricing may sound like an abstract accounting issue, but its effects are very real.
It’s no longer just a technical tax topic. It’s part of a bigger question about whether wealth generated within South Africa stays here to help build the country — or disappears into offshore ledgers that ordinary citizens never see.
