The Base Erosion and Profit Shifting (BEPS) Action Plan adopted by the Organisation for Economic Cooperation and Development (OECD) and G20 countries in 2013 found that part of combatting the global BEPS problem was ensuring that tax administrators are provided with adequate information in order to assess transfer pricing and BEPS risks. For this reason, in October 2015, the OECD published its final reports on the BEPS project, including the BEPS Action 13 report entitled Transfer Pricing and Country-by-Country (“CbC”) Reporting. The Action 13 Report recommended a global master file and local file to be submitted by multinational enterprises (MNEs) to local tax authorities and a CbC report to be submitted by the parent entity in the jurisdiction in which it is tax resident. Tax authorities across jurisdictions will share CbC reports via automatic exchange of information mechanisms.
On 11 April 2016, SARS issued draft regulations in terms of the Tax Administration Act 28 of 2011 that will make this CbC reporting part of our legislation (in line with the Action 13 Report). On 18 April 2016, SARS updated the ITR14 to include new disclosure requirements in respect of transfer pricing, reflecting the Davis Tax Committee recommendations for inclusion in the CbC report, namely service fees by jurisdiction, a break-down of intra-group interest and royalties. SARS will not be obliged to share the information obtained from the ITR14 with other jurisdictions. How SARS will treat such information, remains to be seen.
In terms of transfer pricing, the following additional information is now required in the ITR14:
- Transfer Pricing: Receivables / Payables: The values of domestic transactions are no longer required. The taxpayer will be required to indicate, per category of transaction with foreign related parties, the respective countries of such foreign persons and the values per country.
- The ratio of debt in relation to total tangible assets has been included as one of the financial ratios to be computed by the taxpayer.
- Any change with respect to the transfer pricing methodologies/transaction, operation, scheme, agreement or understanding needs to be indicated.
- Whether the company, since 1990, transferred, alienated or disposed of any South African developed (or previously South African registered) intellectual property.
- Additional questions have been added to the ITR14 to assist SARS with the assessment.
- Further information is required with respect to foreign tax credits.
- These transfer pricing sections are potentially applicable to any medium to large business i.e. a company with total assets exceeding R10 million or gross income exceeding R20 million.
Exactly what all of these new changes mean, and how they are to be interpreted, remains to be seen, and would form part of an evolving process.