A person referred to in paragraph 2 must keep the following records in respect of any potentially affected transaction that exceeds or is reasonably expected to exceed R5 million in value:
| (a) | The nature and terms (including pricing policy) of the potentially affected transactions entered into by the person with each connected person; |
| (b) | Copies of any contracts or agreements related to the potentially affected transactions entered into by the person with each connected person, if such contracts or agreements were prepared in the ordinary course of business; |
| (c) | Any other governance and regulatory documents, such as complete board minutes and South African Reserve Bank applications and approvals, relevant to the potentially affected transactions; |
| (d) | An indication of which party to the potentially affected transaction is the tested party, if applicable, and an explanation of the reasons for the party’s selection; |
| (e) | With respect to the tested party─ |
| (i) | a detailed allocation of revenues, costs, expenses and profits between its connected person transactions and independent person transactions, including records of the application of the transfer pricing policy and documents showing how the financial data used in applying the transfer pricing method reconciles to the annual financial statements; or |
| (ii) | If the financial data for the purposes of subparagraph (i) cannot be directly allocated, an explanation supporting the allocation rationale and documentation that demonstrates how the allocation was carried out; |
| (f) | Where a tested party is tax resident outside the Republic, such documents as evidence the functional and risk classification of the tested party, which include— |
| (i) | a description of the business (including the type of business, details of the specific business, an organogram showing the title and location of staff involved in the affected transaction and external market conditions) and the plans for the principal trading operations (including the business strategy); |
| (ii) | contracts between the tested party and its customers and suppliers; and |
| (iii) | commercial invoices between the tested party and its customers and suppliers; that are relevant to the potentially affected transaction; |
| (g) | A description of the functions performed, risks assumed and assets employed by the person and the connected persons involved in the potentially affected transaction; |
| (h) | A description of the intangible assets involved in the potentially affected transaction, and their influence on the functional and risk classification of the tested party; |
| (i) | Operational flows including information flow, product flow, and cash flow of the potentially affected transactions; |
| (j) | The comparable data and methods considered and used for determining the arm’s length return and the analysis performed to determine the transfer prices or the allocations of profits or losses or contributions to costs, as the case may be, in respect of the potentially affected transactions, including: |
| (i) | A list and description of selected comparable uncontrolled transactions (internal or external), if any, and information on relevant financial indicators for independent enterprises, if any, relied on in the analysis, including a description of the comparable search methodology; |
| (ii) | Summary schedules of relevant financial data for any other comparables used in the analysis and the sources from which the data was obtained; |
| (iii) | If relevant, an explanation of the reasons for performing a multi-year analysis; |
| (iv) | Any comparability adjustments made and the reasons for making such adjustments; |
| (k) | The assumptions, strategies, policies and price negotiations, if any, that influenced the determination of the transfer prices or the allocations of profits or losses or contributions to costs, as the case may be, in respect of the potentially affected transactions; |
| (l) | Details of the adjustments, if any, made to transfer prices to align them with the arm’s length return determined under section 31(2) of the Income Tax Act and consequent adjustment made to the total income or expenses for tax purposes; |
| (m) | With respect to potentially affected transactions that are financial assistance transactions, the following records: |
| (i) | A summary of financial forecasts which are contemporaneous with the financial assistance transactions in question, projected as far as is meaningful in relation to the period of the funding transactions, including a clear picture of the expected levels of interest cover, gearing or other relevant measures over the forecast period; |
| (ii) | An analysis of the financial strategy of the business, including how capital is allocated and the relationship between capital and cash flows from operations and any changes relating to the financial assistance transactions and details regarding principal cash flows and the sources of repayment of debt; |
| (n) | With respect to potentially affected transactions that are financial assistance transactions with a term exceeding 12 months, the following additional records: |
| (i) | A description of the funding structure which has been or is in the process of being put in place, including the dates of transactions, a clear statement of the source of the funds (immediate and ultimate), reasons for obtaining the funds, how the funds were or will be applied (the purpose of the financial assistance) and the repayment terms; |
| (ii) | A group structure covering all relevant companies and clearly setting out any changes to the structure taking place over the course of the financial assistance transactions; |
| (iii) | Copies of the financial statements and management accounts prepared most recently before the point in time the financial assistance is obtained and after the financial assistance has been granted; and |
| (o) | Copies of existing unilateral, bilateral and multilateral advance pricing agreements and other tax rulings to which SARS is not a party and which are related to the potentially affected transactions. |
