Tax-motivated transfer mispricing in South Africa: direct evidence using transaction data

This paper provides the first direct systematic evidence of profit shifting through transfer mispricing in a developing country.

Using South African transaction-level customs data, the author directly tests for transfer price deviations from arm's-length pricing. It is found that multinational firms in South Africa manipulate transfer prices in order to shift taxable profits to low-tax countries.

The estimated tax loss relating to imported goods alone is 0.5% of corporate tax payments. The author’s estimates do not support the common belief that transfer mispricing in South Africa is more severe than in advanced economies.

The author finds that an OECD-recommended reform had no long-term impact on transfer mispricing but argues that the method used in this paper provides a cost-efficient way to curb transfer mispricing.

This open access journal article is available online.