What to expect from South Africa’s advance pricing agreement programme

A proposed model for establishing an advance pricing agreement (“APA”) programme in South Africa (“SA”) was issued by the South African Revenue Authority (“SARS”) during December 2021. This article highlights some notable aspects of this proposed programme, by comparing it to those of other jurisdictions.  

An APA is an agreement between a taxpayer and a revenue authority, whereby the pricing of cross-border related party transactions are determined in advance for future years. An APA programme is being established in SA, in line with international developments and SARS’s strategic objective of providing clarity and certainty to taxpayers in respect of their obligations.

To date, SARS has issued a discussion paper on APAs, and more recently a proposed model for establishing an APA programme in SA. The model includes draft legislation which captures the essential features of the proposed APA programme. It also provides a high-level overview of the envisaged process flow.

Although SA is well on the way to establishing its APA programme, a number of aspects of the proposed model may still have to be clarified. This is specifically based on how APA programmes and the associated processes have been implemented in other jurisdictions, as highlighted below. 

Pre-application consultation meeting

The proposed SA model provides for a pre-application consultation meeting as the first step within the proposed process flow. The draft legislation issued provides a list of 14 specified aspects, which have to be addressed during this meeting. A notable concern is that the level of detail to be considered during the pre-application phase may be so cumbersome that taxpayers may opt out of the APA process instead.

Other jurisdictions also provide for pre-application consultations, although these generally entail a much shorter and streamlined meeting of about 2 hours, for example, in the UK. The revenue authority would then evaluate whether there are merits for the taxpayer to proceed with a formal application. The formal application would be the more complex and time-consuming step in the APA process.

Complexity and monetary value

SA’s draft legislation notes that an application may be rejected based on the monetary value of the transaction(s), which is to be prescribed by way of public notice. It does however not require any complexity threshold, in contrast to jurisdictions such as the UK whose APA programme has been amended to only accept complex transfer pricing matters. Application thresholds such as these prevent the revenue authority from receiving applications for straight-forward pricing arrangements; minimising constraints on finite transfer pricing resources.

The monetary value of the transaction(s) is also typically considered during the pre-application consultation phase, and not during the formal application stage as is proposed by the SA model. This is intended to prevent a situation where a taxpayer incurs time and money to prepare and submit the formal application, for it then to be rejected on the basis that a monetary threshold has not been met.

Time and money

Concluding an APA is often a time-consuming exercise, with various factors having to be accounted for given the number of parties involved. The average time to conclude bilateral APAs in the USA and India, for example, is 42 months; and it takes 49 months on average in Canada. What is notable from SA’s proposed legislation is that it seems to provide SARS with an open-ended timeline to finalise an APA from its side. This approach can be compared to the APA programme in Hungary, as an example, where the Hungarian revenue authority is limited to 180 days to finalise an APA matter from its side. To establish an effective APA regime in SA, the final model and legislation would need to provide appropriate time limit parameters.

Regarding the costs involved, a number of countries, such as Australia, Canada, and the UK, charge no fees for bilateral APAs.  The draft legislation in SA includes four cost elements: fees relating to the pre-application consultation, the application itself, cost recoveries, as well as the maintenance or extension of an existing APA.

The establishment of an APA programme in SA is regarded as a positive step towards implementing measures to avoid costly transfer pricing disputes going forward. There is, however, a concern as to whether the number of costs to be applied are aligned with this objective.

Termination and tax certainty

SA’s draft legislation states that an APA will be terminated retrospectively if the…” effect of the agreement will materially erode the tax base of South Africa…” Apart from the concept of “materially erode” requiring a clear definition, the inclusion of the above in the legislation could result in uncertainty for taxpayers. This goes directly against SARS’s main objective with the APA programme, which is to provide clarity and certainty to taxpayers.

In line with other jurisdictions, SARS may have to consider at the pre-application consultancy stage, the question of whether its tax base would be materially eroded. This would prevent taxpayers from going through the lengthy and expensive process of applying for, and agreeing on, an APA, just to have it terminated by SARS.


With many jurisdictions having had APA programmes for years, SA is offered the opportunity to learn from, and implement, an APA programme based on international best practices. SARS is currently considering comments on the proposed model and one can only hope that the final outcome would re-confirm the usefulness of APAs in the transfer pricing arena.