Author: Arnaaz Camay On 17 July 2013 the Minister of Finance appointed a tax review committee, headed by Judge Dennis Davis (the “Davis Committee”) to make recommendations for possible tax reforms in South Africa (“SA”). The Davis Committee was required to take into account recent international developments and, in particular, to address concerns about base erosion and profit shifting (“BEPS”) which was identified as a risk to tax revenues, tax sovereignty and the tax fairness of countries by the Organisation for Economic Co-operation and Development (“OECD”) in its report published on 12 February 2013. A 15-point Action Plan was developed by the OECD to address BEPS and to ensure that profits are taxed where the economic activities generating the profits are performed and where value is created. The purpose of the OECD ‘Action Plan 13: Re-examine Transfer Pricing Documentation’ was to re-assess transfer pricing documentation requirements with the purpose of Read More …
Category: Transfer Pricing
Transfer pricing documentation requirements due to change
The Davis Committee has made certain recommendations relating to transfer pricing and documentation in its report on the OECD’s Base Erosion and Profit Shifting (BEPS) Action Plan. We are aware that the current transfer pricing practical guidelines, as contained in SARS’ Practice Note 7 (PN7), are not that clear and are based on outdated publications. The Davis Committee confirms that PN7 should be updated and revised to reflect recent developments. At least one legally Binding General Ruling should be enacted on section 31 of the Income Tax Act.
Two Noteworthy Tax Changes Effective from January 1st, 2015
Authors: Dawid van der Berg and Roxanna Nyiri, Tax, BDO South Africa Johannesburg, 17 December 2014 – Two noteworthy taxation amendments come into effect on the 1st of January 2015. The first tax amendment relates to the deductibility of interest paid to a person who is not liable to tax in South Africa, for example non-residents. The section in question, section 23M of the Income Tax Act, intends to protect the South African tax base by limiting such deduction. Views have been expressed that the limitation could deter foreign direct investment into South Africa. For example, local subsidiaries could suffer higher effective tax rates as a result.
Base erosion and profit shifting – a South African perspective
Author: Peter Dachs – ENSafrica The concept of base erosion and profit shifting (BEPS) has been debated at various international forums following discussions at the G20 Finance Ministers and Central Bank Governors meeting and the G20 Heads of State summit in Russia last year. The Organisation for Economic Co-operation and Development’s (OECD) BEPS Action Plan provides for 15 actions to be completed in three phases by December 2015.
BEPS tail shouldn’t wag global investment dog
Author: Claire M.C. Kennedy of Bennett Jones LLP I spoke recently on a panel in Tokyo on the future of international tax planning after BEPS (the OECD’s & G20’s Action Plan to counter Base Erosion & Profit Shifting). The panel also featured a senior official at the OECD and practitioners from the US, Japan, Germany, France, Ireland and the Netherlands It was refreshing to hear the OECD official acknowledge that the international corporate tax planning targeted by BEPS constitutes legal arrangements and transactions and not illegal tax evasion.
The transfer pricing compliance conundrum
Author: AJ Jansen van Nieuwenhuizen, Tax Partner, Grant Thornton Johannesburg By now, most South African taxpayers should be aware that when they enter into transactions with related parties who are not South African taxpayers, such transactions should be concluded on terms and prices that are at arm’s length in nature. The term “arm’s length” essentially indicates a position that two unrelated parties would adopt in an open market transaction, as a willing buyer and willing seller. Critical to managing tax risk for any taxpayer that has transactions of this nature is being able to defend the transfer pricing (TP) position that they have adopted and the only way to adequately do so is through the preparation of TP policy documentation.
Proposed modifications to the transfer pricing guidelines relating to low Value-adding intra-group services
The Organisation for Economic Co-operation and Development (OECD) released a public discussion draft (DD) pertaining to the Base Erosion and Profit Shifting (BEPS) Action Plan 10 on 3 November 2014. The DD intends to reduce the scope for erosion of the tax base by means of the charging of excessive management fees and head office expenses. In establishing an approach, reference is made to so-called low value-adding intra-group services where a simplified approach can be adopted. In such instance the mark-up selected by the taxpayer cannot be less than 2% of the cost nor should it be greater than 5% thereof.
Minor delay in the introduction of the interest withholding tax
However, in terms of the revised draft Taxation Laws Amendment Bill, 2014 (TLAB), which was tabled in parliament on 15 October 2014 and is likely to be promulgated in its current form, a subtle amendment has been made to the effective date such that the interest withholding tax will only be effective from 1 March 2015. Taxpayers are unlikely to be too concerned that the interest withholding tax has been delayed by three months.
Proposed changes to secondary transfer pricing adjustment – further developments
We have previously reported on the draft Taxation Laws Amendment Bill 2014 (Bill) that was released by the National Treasury and the South African Revenue Service (SARS) earlier this year, and specifically in respect of the proposed changes to the secondary transfer pricing adjustment mechanism. The secondary transfer pricing adjustment mechanism, contained in s31(3) of the Income Tax Act, No 58 of 1962 (Act), currently takes the form of a deemed loan in an amount equal to the difference between the arm’s length amount that is taken into account for tax purposes of any resident party as a result of the primary transfer pricing adjustment and the non-arm’s length amount that would have been taken into account had there been no primary transfer pricing adjustment.
The future of the international tax landscape
The Organisation for Economic Co-operation and Development (OECD) Base Erosion and Profit Sharing (BEPS) Action Plan, approved by the OECD Committee of Fiscal Affairs (CFA) in June 2013 and endorsed by the G20 Heads of Government in September 2013, was formulated to combat international tax avoidance by multinational enterprises (MNEs) through artificially shifting profits to low tax jurisdictions and eroding the tax bases of their primary high tax jurisdictions of operation. The objective of the BEPS Action Plan is to secure government revenues by ensuring that profits are taxed in the jurisdiction where the economic activities generating such profits are performed and where value is created.