With increasing economic globalisation, revenue authorities around the world continue to shift their focus to issues of transfer pricing. Broadly, this fits in with the global move to combat so-called profit shifting, a practice where multinational groups attempt to concentrate their profits in low-tax countries in which they operate. In a moment that many tax practitioners have eagerly awaited, the Tax Court finally passed down its first judgment dealing with transfer pricing in the case of ABD Limited v Commissioner, SARS (IT14302). Between 2009 and 2012, the taxpayer licensed its intellectual property to subsidiaries operating in various other countries (opcos) against payment by these opcos of a royalty. For all of these opcos, this royalty was charged at the same flat rate of 1%. The South African Revenue Service (SARS) took the view that this 1% royalty was, in fact, not arm’s length and should have been higher. However, the Read More …
Category: Transfer Pricing
South Africas second transfer pricing case?
Author: Jerome Brink. It is no secret that revenue authorities the world over continue to place significant emphasis on Base Erosion and Profit Shifting (BEPS), with transfer pricing being one of the key focus areas. The South African Revenue Service (SARS) is no different. In fact, the Minister of Finance (Minister) in the recent 2021 National Budget Speech specifically requested an additional spending allocation of R3 billion to SARS which would, amongst others, be used to expand SARS specialised transfer pricing audit and investigative skills.
How to navigate a transfer pricing outcome to a mutually unacceptable outcome
Author: Karen Miller, Consultant at Webber Wentzel. Transfer pricing audits can be onerous, but taxpayers can achieve a more successful outcome by providing all information requested, anticipating areas of concern, and engaging openly with SARS The South African Revenue Services (SARS) recent issue of seemingly arbitrary questionnaires to multinationals on the provision or receipt of intra-group services has encountered much criticism and complaint. Although I agree that there appears to be a lack of coordination at SARS, with many taxpayers receiving these questionnaires while already under a transfer pricing audit, it demonstrates that SARS is serious about tackling the perceived use of transfer pricing to shift profits and contribute to base erosion in South Africa.
Life in a remote world – tax enforcement in transfer pricing
Authors: Joon Chong, Partner & Karen Miller, Consultant at Webber Wentzel. The unusual business conditions of the Covid-19 outbreak will require a more flexible approach from tax authorities when analysing transfer pricing in the 2020 year of assessment The Covid-19 outbreak in late 2019 / early 2020 has impacted the way we live daily and has had a devastating impact on the global economy. While countries struggle to revive ailing economies with interest rate cuts and capital injections, tax authorities need to be more flexible when enforcing transfer pricing for affected transactions in the 2020 year of assessment.
Clarification on the SEZs
Some clarification is seen on the original intention of the Special Economic Zone (SEZ) legislation, since the release of the Draft Taxation Laws Amendment Bill on 21 July. It is proposed, as intended by the SEZ legislation, to attract new and expanded manufacturing businesses, that only new companies or expansions of existing companies would qualify for the SEZ income tax benefits.
MIRROR MIRROR ON THE WALL WHO HAS THE FAIREST TAX RATE OF THEM ALL?
Author: Roxanna Nyiri, National Head of Transfer Pricing and International Tax and Director BDO and Jolani Proxenos, International Tax & Transfer Pricing Consultant at BDO. Developing countries (or capital-importing countries) are making strong efforts to attract foreign investments. South Africa and Mauritius are seen as developing countries and have adopted tax incentive regimes to increase their attractiveness for Multinationals to set-up locally.
SARS publishes draft notice to submit country-by-country, master file and local file returns
Author: Scott Salusbury. On 2 June 2017, the South African Revenue Service (SARS) published a draft public notice requiring the submission of country-by-country (CbC), master file and local file returns. This marks an important step towards the finalisation of South Africas transfer pricing documentation requirements. As a result of the work on the base erosion and profit shifting (BEPS) project, the Organization for Economic Cooperation and Developments Transfer Pricing Guidelines for Multinational Enterprises and Tax Authorities now include recommendations for a three-tiered approach to transfer pricing documentation (ie CbC report, master file and local file), which South Africa is in the process of implementing.
New Public Notice published in respect of mandatory documentation required for transfer pricing transactions
Section 29(1)(b) of the Tax Administration Act, No 28 of 2011 (TAA) provides that a person must keep records, books of account or documents that are specifically required by the Commissioner of the South African Revenue Service (SARS) by public notice. On 28 October 2016, the long-awaited final public notice (Public Notice) regarding the record keeping requirements pertaining to transfer pricing transactions was published under the powers afforded to SARS in s29(1)(b) of the TAA.
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;