“Globally, companies are taking transfer pricing documentation more seriously than before,” said Grant Kaplan, a senior manager at Ernst & Young in South Africa at the firm's Africa Tax Conference.

A shift in responsibility for transfer pricing away from the tax department and to the chief financial officer or finance director at multinationals around the world is occurring in Africa also.

More prevalent transactions are likely to be scrutinised by the revenue authorities, Kaplan said.

In a study of transfer pricing in Africa by Ernst & Young, companies were asked which circumstances they considered most likely to trigger transfer pricing disputes with the tax authorities.

The majority (63%) said monetary volume, followed by recurring losses (47%) and fluctuations in earnings before interest and taxes (43%).

The most susceptible transfer pricing transactions by companies in Africa were thought to be administrative services (60%), intercompany financing (49%) and the transfer of finished goods for sale (34%).

Kaplan advises companies to prepare transfer documentation in a coordinated manner because, just like in the rest of the world, if a company is judged to not be transacting at arm’s length, tax authorities in Africa can make significant adjustments, as well as adding interest and penalties.