New global tax reporting requirements for SA multinationals

By Janice Roberts

Simone Esch, senior tax advisor, Bowmans

By Simone Esch, senior tax advisor, Bowmans

Over 100 countries, including South Africa, are implementing stringent new reporting requirements to ensure that multinational companies’ profits are taxed in the jurisdictions where they are generated. Companies affected by the new transfer pricing and reporting requirements should waste no time in ensuring their compliance.

South Africa has adopted the actions suggested by the Organisation for Economic Cooperation and Development (OECD) to address the worldwide issue of base erosion and profit shifting (BEPS). These actions include a specific focus on the transfer pricing policies and prices of multinational enterprises (MNEs).  They require MNEs to provide detailed reports on their group structures and intergroup transactions to SARS, as well as other revenue authorities in jurisdictions where they operate.

The 2012 G20 Los Cabos summit referred to “the need to prevent base erosion and profit shifting” in its final declaration and tasked the OECD to develop an action plan. Developed as part of the BEPS framework, this plan was presented as the BEPS Package, consisting of 15 actions designed to be implemented domestically and through tax treaty provisions. More than 100 countries have implemented, or are in the process of implementing, these actions.

BEPS action package 

The BEPS Package provides greater certainty to businesses by reducing disputes over the application of international tax rules and standardising compliance requirements. Furthermore, it provides the tools to ensure that profits are taxed where economic activities generating the profits are performed and where value is created.

Many MNEs have been known to use tax strategies like transfer pricing to artificially shift profits to low or no-tax locations where there is little or no economic activity. This is seen in the shifting of risks and intangibles, the artificial splitting of ownership of assets among legal entities within a group, and in conducting intergroup transactions that would rarely take place between independents.

Actions 8-10 of the BEPS Package specifically address these transfer pricing issues. Guidance to MNEs on aligning transfer pricing outcomes with value creation was published in the OECD’s Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations publication of July 2017 (OECD Guidelines).

Furthermore, Action 13 of the BEPS Package provides for the implementation of the OECD Guidelines and prescribes the transfer pricing documentation a MNE must use to report to its resident (home) tax administration at specified periods.

As these reports will be shared with the revenue authority in each country in which an MNE operates, the reporting documentation includes a template for country-by-country reporting (CbC reporting). The intention is to enhance transparency and enable revenue authorities to investigate irregular transfer pricing activities, monitor and eradicate unlawful practices and ensure that MNEs satisfy their tax obligations and pay taxes legally owed by them.

SA’s position on BEPS

To implement this reporting standard, all countries that have adopted the BEPS Package were required to sign the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports (MCAA). South Africa is one of the signatories to the MCAA and has amended the Tax Administration Act to expressly provide for the implementation of the CbC reporting standard.

In light of the international developments and introduction of the South African CbC Regulations, it is now crucial for all MNEs with their head offices and/ or with operations in South Africa to revisit their transfer pricing policies and transfer prices. The aim should be to ensure their transactions with related parties are in accordance with the OECD Guidelines and that they are in compliance with their annual CbC Reporting requirements.

SARS now has the appropriate tools to conduct a thorough investigation into a particular MNE’s cross-border transactions. These tools include the international information-sharing mechanisms acquired in terms of the Common Reporting Standard (CRS) and CbC Reporting, as well as the newly enhanced company tax return (ITR14). The new return specifically enquires about a company’s transfer pricing policy and CbC Reporting status.

SARS has been known to set tight deadlines for taxpayers to supply such information and MNEs should be prepared for this by having their transfer pricing policies analysed and documented (preferably by a transfer pricing specialist) as soon as possible to avoid transfer pricing adjustments and severe penalties.












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