The new provisions introduced in South Africa with effect from 1 January 2015 relating to transfer pricing secondary adjustments include a transitional rule to eliminate deemed loans and will result in tax being payable by 28 February 2015.
With effect from 1 January 2015, any transfer pricing adjustment made after the fiscal year in the
determination of taxable income of a South African taxpayer will result in a secondary adjustment
in the form of a deemed dividend or a deemed donation for donation tax purposes in certain circumstances.
The legislation also incorporates a transitional rule to eliminate deemed loans that arose for transfer pricing purposes, prior to the new deemed dividend or donation rule coming into effect, in respect of years of assessment commencing on or after 1 April 2012 and ending on or before 31 December 2014.
In accordance with this rule, where a transfer pricing adjustment resulted in a deemed loan, then, to the extent that the deemed loan has not been “repaid” before 1 January 2015, it must be deemed to be a dividend in specie or deemed donation, as the case may be, paid on 1 January 2015.
The implication is that the transfer pricing adjustment will give rise to:
- For companies — dividends tax at 15%, subject to any exemptions and applicable tax treaty, payable by the company by the end of the month following the month during which the deemed dividend is made. Payment of the dividends tax should, therefore, be made on or before 28 February 2015.
- For persons other than companies — donations tax at a rate of 20%, subject to any pplicable exemptions. The donations tax is required to be paid by the donor by the end of the month following the month during which the donation takes effect. Payment of the donations tax should, therefore, be made on or before 28 February 2015.