Transfer pricing – Consequence of year end adjustments

As all multinational groups of companies should be aware transfer pricing is a significant tax issue when operating cross border in multiple tax jurisdictions. Transfer pricing legislation exists in most established tax regimes and is becoming more and more prevalent in countries previously considered less tax sophisticated. In the context of South Africa, transfer pricing legislation has been present in the  Income Tax Act, 1962 (the Act) for a number of years and was significantly revised in 2012 to better align with the Transfer Pricing Guidelines issued by The Organisation for Economic Cooperation and Development (OECD).

Transfer pricing – Arm’s length principle

Using South Africa as our departure point, section 31 of the Income Tax Act, 1962 (the Act) provides that the tax payable in respect of international transactions is to be based on the arm’s length principle. In brief, section 31 of the Act provides that: where any transaction, operation, scheme, agreement or understanding (hereinafter, transaction) which constitutes an ‘affected transaction’ has been concluded between connected persons;

Transfer pricing – Consequence of year end adjustments

As all multinational groups of companies should be aware transfer pricing is a significant tax issue when operating cross border in multiple tax jurisdictions. Transfer pricing legislation exists in most established tax regimes and is becoming more and more prevalent in countries previously considered less tax sophisticated. In the context of South Africa, transfer pricing legislation has been present in the  Income Tax Act, 1962 (the Act) for a number of years and was significantly revised in 2012 to better align with the Transfer Pricing Guidelines issued by The Organisation for Economic Cooperation and Development (OECD).

Transfer pricing – Arm’s length principle

Using South Africa as our departure point, section 31 of the Income Tax Act, 1962 (the Act) provides that the tax payable in respect of international transactions is to be based on the arm’s length principle. In brief, section 31 of the Act provides that: where any transaction, operation, scheme, agreement or understanding (hereinafter, transaction) which constitutes an ‘affected transaction’ has been concluded between connected persons; and such transaction contains a term or condition which differs from any term or condition that would have existed had the parties to the transaction been independent vis-à-vis one another and transacting at arm’s length; and the term or condition results in a tax benefit for a party to the transaction; then the tax payable by the benefitting party must be calculated as if the transaction had been concluded between independent parties transacting at arm’s length.

Budget 2016 – An increase in transfer duty – will it dampen the property market?

Last year’s increase in the threshold for transfer duty to R750 000 was positive, but unfortunately no further relief is provided this year for properties on the lower end of the market. Property owners at the top end of the market will, however, be worse off. The Minister announced that the transfer duty rate on properties above R10 million will increase from 11% to 13%. Consequently a new bracket in the transfer duty table will be formed. Transfer duty in this new bracket will, with effect from 1 March 2016, be R937 500 + 13% of the value exceeding R10 million.

Mandatory transfer pricing documentation

Author: Okkie Kellerman (ENSafrica). On 15 December 2015, SARS issued a draft Public Notice that sets out the additional record-keeping requirements for transfer pricing transactions. It proposes extensive and comprehensive documentation requirements that must now be kept by taxpayers with a consolidated South African turnover of R1 billion or more. Although this provides South African taxpayers with clarity on the information that must be retained for transfer pricing purposes, these requirements are fairly onerous and will increase the compliance burden of these taxpayers, resulting in additional costs.   

Transfer pricing drains us of tax blood

Author: Xolani Mbanjwa (Fin24) Transfer pricing by multinationals has cost South Africa an estimated R250 billion over three years and, with it, lost tax revenue. This is according to Sunia Manik, group executive for the large business centre at the SA Revenue Service (SARS), adding that it was being done through “service payments” made to overseas businesses, and was eroding the country’s tax base. Speaking about the new transfer pricing guidelines from the Organisation for Economic Cooperation and Development (OECD) at a seminar in Johannesburg this week, Manik said the figure included almost R80 billion in so-called management fees paid overseas from South Africa.

Transfer pricing: Is there a need to prepare transfer pricing documentation?

Author: Wendy Lumsden (Mazars) In South Africa, as is the trend internationally, the focus on transfer pricing is growing. Both the Organisation for Economic Co-operation and Development (OECD) and the Davis Tax Committee have recommended changes to enforce arm’s length transacting within multinationals. As the focus by tax authorities on transfer pricing continues to escalate, we consider the necessity for South African clients to properly determine arm’s length prices and prepare transfer pricing policies based on transfer pricing research and analysis.

Transfer pricing adjustments and withholding tax on interest

The South African Revenue Service (SARS) released Binding Private Ruling 192 (Ruling) on 28 May 2015, which dealt with withholding tax on interest and cross-border interest-free loans. The applicant was a non-resident and did not have a permanent establishment in South Africa. The co-applicant was a resident South African company, and a connected person in relation to the applicant. The applicant and co-applicant intended to enter into a loan agreement in terms of which the foreign applicant would advance money to the local co-applicant. The loan would be interest-free, unsecured, and payable on demand.

Transfer Pricing Reportable arrangements – Notice published in Government Gazette

A public notice (the “Notice”) was issued in the Government Gazette dated 16 March 2015 in terms of which the Commissioner for the South African Revenue Service lists arrangements which are listed as reportable arrangements in terms of section 35(2) of the Tax Administration Act No 28 of 2011 (“TAA”), and excluded arrangements in terms of section 36(4) of the TAA. The effective date of the Notice is 16 March 2015.