Strategizing International Tax Best Practices – by Keith Brockman

Posts tagged ‘SARS’

S. Africa CbC / TP requirements

The South African Revenue Service (SARS) released its final notice re: requirements for filing the Country-by-Country (CbC) report, Master File and Local File, in alignment with OECD BEPS Action Item 13.

It is interesting that, pursuant to minimum thresholds, both a Master File and Local File are required to be filed, rather than only the Local File.  This may become more of a norm, versus an exception, as the global transfer pricing and risk environment will need to be reviewed in alignment with local business operations.  Hopefully, the review will encompass confidential limitations on the information received and will only encompass transfer pricing practices of the local operations rather than extend CbC presumptions or Master File analogies against the local data.

EY’s Global Tax Alert provides the relevant details of the SARS requirement.

http://www.ey.com/Publication/vwLUAssets/South_African_Revenue_Service_releases_Public_Notice_concerning_Country-by-Country_reports_-_master_file_and_local_file/$FILE/2017G_05868-171Gbl_TP_South%20African%20RS%20releases%20Public%20Notice%20concerning%20CbCR%20master%20and%20local%20file.pdf

SARS service disclosures – Risk review

The South African Revenue Service (SARS) has reported a new inbound service disclosure requirement due in mid-April 2016.  Penalties are applicable for late filing.

It is expected that SARS will use the information collated to assess the risk of tax exposures resulting from permanent establishments, transfer pricing, VAT, employees’ tax and potential exchange control violations.

EY’s Global Tax Alert is provided for reference.

http://www.ey.com/Publication/vwLUAssets/South_Africas_new_reportable_arrangement_requires_urgent_action_in_relation_to_inbound_services/$FILE/2016G_CM6317_ZA%20new%20reportable%20argmt%20requires%20urgent%20action%20in%20relation%20to%20inbound%20svs.pdf

Best Practice thoughts for local disclosures:

  • How does HQ/Regional Tax identify local tax (primarily BEPS related) disclosures that require information possibly not known by the local entity?
  • What type of governance/control process exists to ensure important filings are not missed?
  • Are external advisor(s) being relied upon to inform a MNE of all such disclosures?
  • Is a master calendar available for such filings?
  • Who is responsible for identifying new disclosures?
  • Is there a single point of tax contact for such filings?
  • Are internet sites relied on partially/exclusively for updates?

This new disclosure brings Best Practice ideas into action, as such filings are easy to miss if not identified timely.  

S. Africa tax initiatives: BEPS

The revenue authorities from South Africa, Botswana, Lesotho, Mozambique, Namibia, Swaziland and Zambia shared their thoughts and insights at a Best Practice tax meeting in Pretoria, South Africa on 16 July, 2015.

The Joint Statement of the Commissioners is attached for reference:

http://www.sars.gov.za/AllDocs/Documents/MediaReleases/Joint%20statement%20of%20the%20Comissioners%20General%20and%20heads%20of%20delegation%20-%20%20Illicit%20Financial%20Flows%20meeting%20-%2016%20July%202015.pdf

Key considerations:

  • Closer cooperation is needed re: illicit financial flows for tax and customs purposes.
  • The country-by-country (CbC) reporting threshold set by the OECD may need to be less for the African sub-region.
  • Information re: aggressive tax and duty schemes will be shared with existing treaty provisions.
  • Collaborative efforts will ensure to counter direct and indirect tax fraud.
  • Measures should be adopted to mitigate negative effects of profit shifting.
  • Legal frameworks and collaboration efforts will improve.
  • A regional database is to be established to support a risk-based approach.
  • Treaty networking will be emphasized, including the African Tax Administration Forum (ATAF) Agreement on Mutual Assistance in Tax Matters (AMATM).
  • South Africa will host a technical transfer pricing meeting, as well as convene the next meeting by October 2015.

Regional tax authorities in the African region, and others around the world, are working closer together to formulate Best Practices and join efforts to mitigate base erosion and profit shifting activities.

This collaboration also provides multinational organizations an opportunity to review their proactive efforts with tax authorities around the world to form trusting relationships and win-win opportunities to achieve mutual benefits.

S. Africa: Draft notice on “reportable arrangements”

In an ever-increasing tidal wave of transparency proposals, the South African Revenue Service (SARS) issued a draft notice on Reportable Arrangements.

The proposals provides that a Reportable Arrangement must be reported to SARS with 45 business days if:

  • A nonresident renders technical, managerial or consultancy services (non-defined terms) to a resident, and
  • The nonresident, its employees, agents or representatives were or will be physically present in S. Africa in rendering such services, and
  • The expenditure will exceed R10M (approx. $823k) in the aggregate.

Penalties for non-disclosure are applicable, and SARS may use this new mechanism to determine if the non-resident company is registered for income tax or VAT in S. Africa and if there is a permanent establishment (PE) for profit attribution.

http://www.ey.com/Publication/vwLUAssets/South_Africa_issues_draft_notice_on_reportable_arrangements/$FILE/2015G_CM5521_South%20Africa%20issues%20draft%20notice%20on%20reportable%20arrangements.pdf

This proposal is important to monitor, as it highlights different methodologies for determining what services are being provided by non-resident companies, and if such activities could be designated as a PE with some profits subject to tax.  

The UK’s Diverted Profits Tax, Australia’s follow the leader implementation in its General Anti-Avoidance Rules (GAAR) and this disclosure present different processes that tax administrations are looking to capture additional taxes for fiscal growth, incentived by the OECD BEPS Guidelines and objectives, although such Guidelines are not yet finalized.

S. Africa’s “reportable arrangements”- BEPS incentivized contemporaneous reporting

KPMG’s summary provides details for contemporaneous reporting (i.e. within 45 business days) of “reportable arrangements” that include acquiring a controlling interest in a company with loss attributes, hybrid debt/equity instruments, contributions to/beneficial interests in foreign trusts, and certain arrangements with foreign insurers.

The hybrid debt/equity arrangements are aimed at tackling BEPS substance vs. form transactions, although this unilateral guidance precedes final OECD guidelines and thereby represents an additional reporting requirement for such instruments, notwithstanding potential taxation of  related dividends or denial of deductions for related interest.

The public notice also provides for “excluded arrangements” where the aggregate tax benefit does not exceed R5M, although the exclusion for transactions where a tax benefit was not the main, or one of the main, purposes of the arrangement appears to have been removed from this new legislation.

http://www.kpmg.com/ZA/en/IssuesAndInsights/ArticlesPublications/Tax-and-Legal-Publications/Pages/Reportable-Arrangements-Amended.aspx

This new “contemporaneous” guidance provides a very small window for reporting “reportable arrangements” to the South African Revenue Service (SARS).  Accordingly, a review of current and prospective arrangements in S. Africa should provide for timely reporting governance guidelines.

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