Wednesday, 21 December 2016

South Africa Increases Transfer Pricing Documentation Requirements

On October 28, 2016, the South Africa Revenue Service (SARS) issued Notice No. 1334 concerning additional transfer pricing documentation requirements, under Section 29 of the Tax Administration Act, for South African companies with cross-border related-party transactions that exceed R 100 million each year in the aggregate. If the threshold is met, the additional documentation requirements will cover all individual cross-border transactions that exceed R 5 million for fiscal years starting on or after October 1, 2016. The information would have to be maintained by South Africa companies.

While regulatory authority to issue country-by-country (CbC) reporting regulations was enacted on January 8, 2016 via Clause 33(b) of the Tax Administration Laws Amendment Act, 2015 (Act No. 23 of 2015), SARS has not yet implemented the regulations. However, SARS issued draft CbC reporting regulations on April 11, 2016, for public consultation that closely align with the OECD BEPS Action 13 minimum standards. The proposed regulations would apply for fiscal years beginning on or after January 1, 2016, with initial CbC reports due by December 31, 2017.

Pursuant to Notice No. 1334, if a person has entered into a “potentially affected transaction” and the aggregate of the person’s potentially affected transactions for the year of assessment exceeds or is reasonably expected to exceed R 100 million, then the following will be required (list is not exhaustive):

  • A description of the person’s ownership structure.
  • The name, address of the principal office, legal form and jurisdiction of tax residence of each of the connected persons.
  • The person's business operation summary, including a description of business restructurings or transfers of intangibles, key value drivers, and industry incentives affecting the business.

In addition to the above, a person will have to keep the following records in respect of any potentially affected transaction that exceeds or is reasonably expected to exceed R 5 million in value (list is not exhaustive):

  • The nature and terms entered into by the person with each connected person.
  • Copies of any contracts or agreements entered into with each connected person, if such contracts or agreements were prepared in the ordinary course of business.
  • A description of the functions performed, risks assumed and assets employed by the person and the connected persons.
  • A description of the intangible assets and their influence on the functional and risk classification of the tested party.
  • Operational flows including information flow, product flow, and cash flow.
  • Where a tested party is tax resident outside South Africa, documents that depict the functional and risk classification of the tested party, including a description of the business, contracts between the tested party and its customers and suppliers, and commercial invoices between the tested party and its customers and suppliers.

Source: Thomson Reuters