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By Roxanna Nyiri & Jolani Proxenos*
In his Budget Speech, the Minister of Finance today emphasised again that tax avoidance or evasion schemes by Multinational Enterprises (MNEs) should be curbed. South Africa is part of the international tax movement to eliminate base erosion and profit shifting (BEPS) through the OECD/G20 BEPS Action Plans finalised in October 2015.
The OECD/G20 BEPS Project developed 15 key reform actions in the international tax arena to ensure that profits are reported where economic activities are carried out and value created. BEPS assists governments in closing the tax gap created by profit shifting from higher to lower or no tax environments, without underlying substance.
BEPS Action Plan 13 contains Country-by-Country (CbC) reporting requirements for MNEs. Action 13 requires the reporting entity of the MNE group to collect and file the information in its residence country. The CbC report provides tax authorities with information on the global allocation of the group income and whether it follows where the functions are performed, assets used and risks are assumed.
With the automatic exchange of information between tax authorities coming into force in 2017, tax authorities will exchange CbC reports electronically which will assist tax authorities to obtain a complete understanding of the manner in which MNE structures operate.
SARS published its CbC reporting requirements on 23 December 2016, which confirm that South Africa participates in the BEPS projects. South Africa signed the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports on 27 January 2016. In terms of the CbC reporting requirements, an ultimate parent entity of an MNE Group that is a resident for tax purposes in South Africa is required to file a CbC report containing the information set out in Article 4 of the Government Notice. The CbC report must be filed within 12 months from the last day of the Reporting Fiscal Year of the MNE Group.
SARS will use the CbC Report to identify high-level transfer pricing risks and other BEPS related risks in South Africa. These will include assessment on the risk of non-compliance by the members of the MNE Group, application of the transfer pricing rules and assessment of whether an appropriate economic and statistical analysis exists. SARS may not use the CbC report to make primary and secondary transfer pricing adjustments contained in Article 31 of the Income Tax Act. These regulations apply with effect from the Report Fiscal Years of MNE Groups beginning on or after 1 January 2016.
- Roxanna Nyiri is head of International Tax and Transfer Pricing, and Jolani Proxenos is Transfer Pricing Consultant, both at BDO South Africa.
