SARS issued a new draft Taxation Laws Amendment Bill, 2014 on 17 July 2014. The draft legislation gives effect to matters presented by the Minister of Finance in the Budget Review 2014, as tabled in Parliament earlier this year.
Category: Transfer Pricing
Base erosion and profit shifting (“BEPS”) – do you know what is coming?
As a result of the global financial crisis, the necessity for growth has become paramount and fiscal consolidation non-negotiable. Private sector growth is fundamental for economic recovery and to reduce deficits. There is a general belief, even in developing countries, that governments are losing substantial tax revenues as a result of aggressive tax schemes which result in the eroding of the tax base or the shifting of profits into more favourable tax jurisdictions.
Relief from transfer pricing for controlled foreign companies
Author: Arnaaz Camay of 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: any transaction, operation, scheme, agreement or understanding constitutes an “affected transaction” and
Transfer pricing in South Africa
South Africa’s transfer pricing and thin capitalisation regime, as contained in s31 of the Income Tax Act, No 58 of 1961 (Act) has undergone some extensive principle changes over the past two years. In respect of transfer pricing, the focus had always been on the supply of goods and services between certain connected persons, usually a resident and a non-resident. Where the price for such goods or services was not at arm’s length, the South African Revenue Service (SARS) could adjust the consideration paid so that the parties would be taxed as if they did deal at arm’s length. A secondary adjustment also entailed a deemed distribution of a dividend in respect of which the now-repealed secondary tax on companies would have had to be accounted for.
The new South African transfer pricing rules – latest developments
More than a year has passed since the announcement was made in the middle of 2010, that the South African transfer pricing rules would undergo a substantial redrafting process in order to align them with international best practice. In the meantime, the initially envisaged effective date of the 1 October 2011 has come and gone and the third updated version of the new section 31 of the Income Tax Act 58 of 1962 (“the Act”) has just been introduced by the Minister of Finance to Parliament in terms of the Taxation Laws Amendment Bill, 2011 (No. 19 of 2011) (“the 2011 Amendment Bill”), which if promulgated in its current form, will come into operation on 1 April 2012, applying in respect of all financial years commencing on or after that date.
Interest-free shareholder's loans at arm's length?
Where foreign subsidiaries find themselves in financial distress, the interest rate on the shareholder loans from a South African shareholder may be reduced to zero percent as the foreign subsidiary is unable to pay any interest due to the fact that it may be insolvent. However, in terms of the transfer pricing provisions in section 31(2) of the Income Tax Act, Act 58 of 1962, as amended, all shareholder’s loans granted by South African shareholders to foreign subsidiaries should bear an arm’s length interest rate. The question therefore remains whether a zero interest rate on a shareholder’s loan will be seen as an arm’s length interest rate for South African transfer pricing purposes.