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Determination of the Taxable Income of Certain Persons from International Transactions: Intra-Group Loans
- 03 February 2023
- Corporate Tax
- SARS
This Note provides taxpayers with guidance on the application of the arm’s length principle in the context of the pricing of intra-group loans. The pricing of intra-group loans includes a consideration of both the amount of debt and the cost of the debt. An intra-group loan would be incorrectly priced if the amount of debt funding, the cost of the debt or both are excessive compared to what is arm’s length.
The Note also provides guidance on the consequences for a taxpayer if the amount of debt, the cost of debt or both are not arm’s length.
The guidance and examples provided are not an exhaustive consideration of every issue that might arise. Each case will be decided on its own merits taking into account its specific facts and circumstances.
The application of the arm’s length principle is inherently of a detailed factual nature and takes into account a wide range of factors particular to the specific taxpayer concerned.
Section 31 was substituted by the Taxation Laws Amendment Act, 2011 with effect from years of assessment commencing on or after 1 April 2012. Practice Note 2 of 14 May 19964 and its Addendum of 17 May 2002, which gave guidance on section 31(3), were withdrawn for years of assessment commencing on or after 1 April 2012, since they were no longer applicable from the date the legislation changed.
Source: SARS