Draft Interpretation Note - Determination of taxable income of certain persons international transactions: intra-group loans

The submission contains SAICA’s comments on the Final Interpretation Note (IN) 28 (Issue 3) issued by SARS on 11 February 2022 that 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 discussion of every issue that might arise. Each case will be decided on its own merits taking into account its specific facts and circumstances. A Note was released as a draft in 2013 and 2017. Due to changes in legislation (for example, changes to the secondary adjustment mechanism), changes to the content of the Note in terms of additional detail and the inclusion of new sections (for example, the interaction between section 31 and section 23M, section 23N and the interest withholding tax provisions) and the release of the OECD Transfer Pricing Guidance on Financial Transactions in 2020, this latest draft is issued for comment.