Only weeks after African Tax Administration Forum (ATAF) member countries and the OECD signed a memorandum of co-operation on transparency and exchange of information, SARS formally agreed to a further exchange of information forum with its fellow BRICS (Brazil, Russia, India and China) countries. This illustrates SARS' proactive approach to improving the enforcement of transfer pricing regulations.

The BRICS countries have officially committed to sharing their experiences of best practice in the area of transfer pricing, capacity building and general anti-avoidance and a coordinated group has been established to discuss tax policy and administration. It is hoped that this will provide a greater scope for consensus building and exchange of ideas and experiences between developing countries on key aspects of international taxation.

To enhance the auditing ability of SARS officials working in the transfer pricing division, SARS formally indicated the intention to second a number of employees to other BRICS countries for training and will receive BRICS officials in return, so that each BRICS country is able to learn from the skills and experience of their respective fellow members.

In addition, SARS expressed particular interest in the Advanced Pricing Agreement (APA) regimes of the other BRICS countries and there is consensus to focus more effort on addressing the practices currently resulting in what is perceived to be a concerning erosion to the tax base. India has specifically committed to assisting South Africa in this regard and has pledged to share its resources and knowledge with SARS. In addition, China is also being assisted by India in their implementation of an efficient APA system.

In the past few years, India has emerged as a benchmark for many aspects of not only the BRICS nations, but many other countries' tax systems. India's transfer pricing legislation and court case precedent has been applied as a guideline for other countries in the process of drafting legislation in this regard. With the assistance of India, it is likely that the APA process will be introduced and developed more quickly and efficiently. This is good news for tax professionals and multinationals in South Africa and China alike.

What is interesting to note is that none of the BRICS countries are members of the OECD. Brazil, in particular, has legislated transfer pricing rules quite at odds with OECD accepted practice. This is perhaps because traditionally developed and developing countries have had different positions on issues relating to international tax policy, and it is widely recognised that the OECD guidelines are more applicable to developed nations and thus not always suitable to transactions occurring in less developed economies. Further, comparability concerns have often hindered the application of the OECD methodologies.

India, being the most notable transfer pricing influence on the BRICS countries, acknowledges the OECD principles in applying Indian fiscal law. However, during the past few years, Indian tax authorities have consistently been aggressive, often ignoring generally accepted international principles and therefore it is important that in accepting assistance from India, South Africa consider their position as an OECD observer country.

By establishing a forum to promote the sharing of resources, the BRICS countries may be able to provide working solutions for the problems being experienced by developing nations in applying the OECD methods. This will greatly assist many developing countries, including the other ATAF members, especially in the light of the ATAF exchange of information agreement committed to by SARS.

In addition to a more collective approach to transfer pricing being applied, easing the ability of developing countries to engage in more efficient trade, the commitment of the BRICS countries to work more closely will likely result in more aggressive transfer pricing regulations being introduced, meaning increased tax revenues and enhanced ability to achieve sustainable growth, much desired goals of most developing nations.

It is important, however, that the BRICS countries as well as the ATAF member countries carefully manage the balance between effective development of transfer pricing regulations and ensuring that these countries remain attractive investment locations.

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