On 17 April 2023, the South African Revenue Service (SARS) published an interpretation note 128 on the definition of “associated enterprise”. This note provides guidance on the interpretation and application of the definition of “associated enterprise” in section 31(1) of the Income Tax Act (ITA). Previously the definition of “affected transaction” only included transactions, operations, schemes, agreements or understandings directly or indirectly entered between the specified parties that were connected persons in relation to one another.
As such, the application of the transfer pricing rules contained in section 31 had the unintended consequence of not always capturing transactions between “associated enterprises” which may not have fallen within the “connected persons” definition. To correct this unintended consequence and to bring the legislation in line with international standards, the term “associated enterprise” as contemplated in Article 9(1) has been inserted into section 31(1) and into the definition of an affected transaction with effect from years of assessment commencing on or after 1 January 2023.
This will result in “affected transactions” applying to both associated enterprises and connected persons in respect of years of assessment commencing on or after this date.
