Author: Jonathan Sweidan (KPMG) Jonathan Sweidan argues that bilateral or multilateral safe harbours should be considered by SARS seeing as they can mitigate the major problem of double taxation. The South African Revenue Service (“SARS”) has declared that transfer pricing is one of the highest priorities in terms of revenue and enforcement.
Category: Transfer Pricing
Transfer pricing – changes to secondary adjustments
By Christel du Preez, Senior Tax Manager Grant Thornton Johannesburg The proposed amendment The Draft Taxation Laws Amendment Bill 2014 proposes a revision of transfer pricing compliance in in the form of a deemed dividend, from 1 January 2015. It proposes that in future, the Section 31 secondary adjustment be deemed a dividend in specie, to be paid by the South African taxpayer to its foreign connected person.
Proposed changes to secondary transfer pricing adjustment
National Treasury and the South African Revenue Service (SARS) recently released the draft Taxation Laws Amendment Bill 2014 (Bill). One of the key proposals in the Bill is to change the secondary transfer pricing adjustment mechanism from a deemed loan to a deemed dividend. Transfer pricing is a concern because, where for example a local party undercharges a foreign connected party for goods or services, or where the foreign connected party overcharges the local party, the parties to the transaction can effectively manipulate their income and taxable profits can be shifted from South Africa to other jurisdictions.
Clamour to end transfer pricing abuse
Author: Linda Ensor (BDlive) Pressure is mounting both within and outside Parliament for the government to introduce dedicated legislation to ban transfer pricing when it is used as a tax-avoidance measure to shift profit offshore. South Africa is estimated to lose tens of billions of rand annually from the abuse of transfer pricing by multinational groups, but South African Revenue Service (SARS) large business centre group executive Sunita Manik said on Wednesday that transfer pricing itself was accepted practice globally and could not be banned.
South Africa: transfer pricing legislation to be amended again
The draft Taxation Laws Amendment Bill (“DTLAB”), released for public comment on 17 July 2014, proposes certain changes to the transfer pricing secondary adjustment mechanism in terms of which the amount of the secondary adjustment will now be deemed to be a dividend in specie paid by the South African taxpayer to the non-resident connected person.
Relief from transfer pricing for controlled foreign companies
Author: Arnaaz Camay (ENSafrica) The current transfer pricing provisions contained in section 31 of the Income Tax Act, 58 of 1962 came into effect on 1 April 2012 and are applicable for years of assessment commencing on or after that date. In terms of section 31(2), where:
Proposal to amend Section 23N to better reflect market norms
By Webber Wentzel – South Africa Section 23N, which replaced section 23K with effect from 1 April 2014, prescribes rules to cap the deduction of interest incurred in respect of debt incurred by the acquirer of a business pursuant to a section 45 intra-group transfer, a section 47 liquidation distribution or a section 24O acquisition of shares. Section 23N applies to the refinancing of debt that was subject to section 23K and/or section 23N.
Long term loan exemptions from transfer pricing provisions
New requirement for long term loan exemptions from transfer pricing provisions The current transfer pricing rules contained in section 31 of the Income Tax Act require the taxable income of a resident, which is party to an ‘affected transaction’, to be calculated as if the relevant transaction had been entered into on terms and conditions that would have existed between independent persons dealing at arm’s length (to the extent that a party to the ‘affected transaction’ derives a tax benefit).
Additional changes made to SA’s transfer pricing legislation
After widespread criticism and various comments and submissions to National Treasury/SARS, it has been proposed, in terms of the 2014 Draft Tax Laws Amendment Bill, that South Africa’s transfer pricing legislation relating to Secondary Adjustments, be amended once again. Secondary adjustment The term Secondary Adjustment is explained as follows in the Organisation for Economic Co-operation and development’s Transfer Pricing Guidelines:
Where to with thin capitalisation?
The South African Revenue Service (“SARS“) believes that the current thin capitalisation rules are not aligned with the views of the Organisation for Economic Co-operation and Development (“OECD”) in that the thin capitalisation rules should form part of transfer pricing principles. Interest between connected parties should only be deductible to the extent that the underlying debt finance would have been granted if such funding was advanced by an unconnected party on an arm’s length basis. In other words, the extent of the debt must be measured against the arm’s length principle as a first test and only then should we consider whether the interest rate charged is an arm’s length price.