On December 23, 2014, South Africa’s Davis Tax Committee (“DTC”) released a First Interim Report on BEPS (the Report) for public comment. The DTC was formed by the Minister of Finance on July 17, 2013 to “evaluate the South African tax system against the international tax trends, principles and practices, as well as recent international initiatives to improve tax compliance and deal with tax base erosion”. The Report, which is aligned with the September 2014 deliverables on the OECD BEPS Action Plan, covers the Action 13 recommendations on transfer pricing documentation, among other items.
Proposed Documentation Regulations. On December 15, 2015, the South African Revenue Service (SARS) issued a draft notice in terms of Section 29 of the Tax Administration Act 2011, setting out additional record-keeping requirements for ‘potentially affected transactions.’ The notice contains a schedule (the Schedule), which requires specific persons to keep and retain the records, books of account or documents prescribed in the Schedule that generally align with the OECD BEPS Action 13 recommendations.
The Schedule divides persons into two categories, namely, those with a ‘consolidated South African turnover’ of R1 billion (approximately $64 million) and above and those below such figure. Consolidated South African turnover is defined as the total consolidated turnover of a group that is subject to normal tax in the Republic. A person who is a member of a group with a consolidated South African turnover of less than R1 billion is required to keep and retain the records, books of account or documents that enable the person to ensure, and SARS to be satisfied, the person’s potentially affected transactions are conducted at arm’s length.
For persons with consolidated South African turnover of R1 billion or more, the Schedule sets out in detail the records, books of account and/or documents that must be kept and retained. These include, among others, the following:
- A description of the person’s ownership structure, with details of shares or ownership interest held by other persons.
- Copies of contracts or agreements related to the potentially affected transactions entered into by the person with each connected person.
- A description of the functions performed, risks assumed and assets employed by the person and connected persons involved in the potentially affected transactions.
- A description of the intangible assets involved in the potentially affected transactions, and their influence on the pricing of the potentially affected transactions.
- With respect to the ‘tested party’, a detailed allocation of revenues, costs, expenses and profits between its transactions with connected persons and transactions with independent persons, including records of the application of the transfer pricing policy and information showing how the financial data used in applying the transfer pricing method reconciles to the annual financial statements.
- The comparable data and methods considered and used for determining the arm’s length return and analysis performed to determine the transfer prices or the allocation of profits and losses or contributions to costs.
- With respect to potentially affected transactions that are financial assistance transactions, the following additional information must be kept and retained:
- Description of the funding structure.
- Description of the business and the plans of the principle trading operations.
- Copies of relevant financial assistance agreements and other relevant documents.
- An analysis of the financial strategy of the business.
- A group structure.
- Copies of financial statements and management accounts just before the point in time financial assistance is obtained and after the financial assistance transaction.
- A summary of financial forecasts which are contemporaneous with the financial assistance transactions in question.
- Any other information, data or document, including or relating to a connected person, which may be relevant for the determination of the arm’s length return under Section 31(2) of the Income Tax Act, 1962.
Comments to the draft notice must be submitted to SARS on or by February 5, 2016.
Exchange of CbC Information. On January 8, 2016, South Africa published the 2015 Tax Administration Laws Amendment Act, Act No. 23 of 2015 (Tax Administration Act) and the 2015 Taxation Laws Amendment Act, Act No. 25 of 2015 (Taxation Laws Act), both of which have been approved by the president. Although South Africa has not yet implemented Country-by-Country (CbC) reporting requirements, it has included language in the Tax Administration Act concerning standards for the exchange of CbC reports. The Tax Administration Act defines ‘international tax standard’ as the CbC Reporting Standard for Multinational Enterprises specified by the [Finance] Minister.
Empowering you with knowledge. Preparing you for action.
Thomson Reuters BEPS research and technology solutions empower you with up-to-date knowledge, analysis and documentation tools to respond, comply and advise as new laws and standards are passed on a country-by-country basis. Learn more at tax.tr.com/BEPS.