South Africa: Summary Of The Davis Tax Committee’s BEPS Sub-Committee General Report Released December 2014

Last Updated: 23 February 2015
Article by Peter Dachs

Most Read Contributor in South Africa, September 2016


This note provides a summary of the Davis Tax Committee's (DTC) general report detailing the South African perspective of Base Erosion and Profit Shifting (BEPS).1 The Sub-committee's interim report released during December 2014 is titled "Addressing Base Erosion and Profit Shifting in South Africa" and provides the DTC's stance on BEPS as of the 30th of September 2014.2

The Davis Tax Committee and the Base Erosion and Profit Shifting Subcommittee

The South African Minister of Finance appointed the DTC to review South Africa's taxation system in light of economic growth, employment, development and fiscal sustainability. The DTC subsequently established a sub-committee to address concerns regarding "base erosion and profit shifting" (BEPS). The DTC BEPS Sub-committee focuses on BEPS's effects on the nation's tax base as identified by the Organisation for Economic Co-operation and Development (OECD) and G20.3 The report is up to date with the OECD's deliverables providing all 7 of the 15 deliverables in accordance with the OECD's schedule.

Throughout the report, the DTC consistently refers to South Africa's National Development Plan (NDP) and notes that while South Africa has a vested interest in combatting BEPS, South Africa should not adopt OECD measures without considering the country's need to encourage foreign direct investment (FDI) in light of the NDP. The DTC also notes the general need to preserve South Africa's international competitiveness by providing a tax environment conducive to economic growth.4

The DTC provides that protection against BEPS must occur at a policy level by "strengthening the source basis of taxation to effectively deal with inbound investments."5 It must ensure effective withholding taxes, account for the impact of treaties, consider the impact of exchange controls, and consider the Finance Ministry's intended phase-out of exchange controls. At an administrative level, the use of proper forms and withholding processes must be considered as well as the impact of treaties on the exchange of information.6

To what extent is BEPS a problem in South Africa?

Although it is difficult to quantify the occurrence of BEPS in South Africa, the DTC writes that since the country rejoined the global economy in 1994, there is increased global interest in South Africa. Naturally, South Africans are more actively participating in offshore investments and minimizing global tax exposure.7

The National Development Plan (NDP) is South Africa's fiscal and economic strategy and supports a competitive tax policy that fosters economic growth, an increase in tax revenues, and an increase in the tax base. Given the many times the NDP is referenced throughout the report, the NDP framework will clearly guide the DTC's practical response to BEPS.

The Sub-committee looked to the South African Revenue Service (SARS) statistics indicating that corporate revenues were fairly stable until 2008 and took a predictable down turn after the 2008 financial crisis. However, despite increased economic activity in certain sectors, the corporate tax contribution to the GDP declined between 2008 and 2013.8 The DTC writes that is does not believe that the declining trend in the ratio of corporate income tax to GDP is necessarily from the existence or non-existence of BEPS practices.

Second, the Sub-committee reviewed the National Treasury's 2013 Budget, which concluded in line with the SARS' statistics above. The National Treasury's report showed that corporate tax revenue in South Africa declined from 7.2% of GDP in 2008/9 to 5.5% in 2009/10 and to 4.9% in 2010/11. In 2011/12, the ratio slightly recovered to 5.1% but then decreased again to 4.9% in 2012/2013.9

Third, the Sub-committee referenced the South Africa Reserve Bank (SARB), which records payments directed offshore. The DTC references SARB data that measures non-goods payments from 2008 to 2011 inclusive. Non-goods payments include copyright, royalty and patent fees; legal, accounting and management consulting fees; advertising and market research; research and development; architectural, engineering and technical services; and agricultural, mining and other processing services. Approximately 50% of all payments flowing out of South Africa relate to legal, accounting and management consulting services.10

Interestingly, just after the 2008 financial crisis, overall outflows increased by nearly 25%.11 Although the South African economy did not feel the full effect of the financial crisis, the DTC finds it peculiar that legal, accounting and management consulting services increased by nearly R6.5bn (an increase of 32.6%). Engineering and technical services increased by R3.7bn (an increase of 39.5%).12

Besides citing the above studies, the DTC does not provide a quantifiable or definitive indication of the prevalence of BEPS in South Africa.

State-owned multinational corporations

Lastly, the Sub-committee looked to state-owned or controlled enterprises, which the DTC identified as significant "players in cross border trade as well as posing potential transfer pricing risk."13 The DTC showed great interest in state enterprises because state-owned enterprises appear to consume a notable portion of South African non-goods services.

In 2011, the United Nations Conference on Trade and Development (UNCTAD) reported that there are at least 650 state-owned multinationals globally, constituting an important emerging source of foreign direct investment (FDI). Further, the DTC notes that there are more than 8,500 state enterprise foreign affiliates globally, bringing foreign affiliates in contact with several host economies.

The DTC also notes that although state-owned multinationals comprise of less than 1% of all multinationals, their FDI totals about 11% of total FDI globally.14 Consequently, the DTC BEPS Sub-committee considers state-owned multinationals a significant force in non-goods transactional flows. It surmises that state-owned enterprises consume non-goods in a unique way relative to general consumption trends. The DTC cites that state-owned multinationals spend nearly 50% of total payments on legal, accounting and management consulting services. The second largest type of state-operated enterprise purchases is copyright, royalty, and patent fees and architectural, engineering, and technical services. Lastly, the DTC notes that State-owned enterprises are the largest consumers of engineering and technical services at 44% of the total data set.15

The DTC Sub-committee also assessed the top non-goods payments in taxpayer sectors; unsurprisingly, the prevalence of payments come from the manufacturing and mining sectors. The DTC views the magnitude of non-goods transactions as a serious threat to the fiscus. Itis an indication that illicit tax base migration through avoidance schemes and practices could be taking place.16 "[C]onstant reviews in respect of assurance interventions and tracking should become the norm."17 The DTC also notes that, "in respect to consuming services from abroad, a permanent establishment (PE) risk exists for the offshore service providers."18

To read this article in full, please click here.


1. See also the Annexure titled, "The Summary of Recommendation for South Africa: OECD September 2014 Deliverables."

2. "Addressing Base Erosion and Profit Shifting in South Africa: Davis Tax Committee Interim Report"

3. This summary does not address the OECD's 15 point action plan in detail. For more information on the BEPS Action Plan, see OECD "Action Plan on Base Erosion and Profit Shifting" ( (accessed 13-01-2015)

4. Davis Tax Subcommittee Report on BEPS (page 25).

5. Addressing Base Erosion and Profit Shifting in South Africa: Davis Tax Committee Interim Report. Page 38.

6. The Davis Tax Committee "Interim Report: Addressing Base Erosion and Profit Shifting in South Africa." Page 28 (23-12-2014)

7. The Davis Tax Committee "Interim Report: Addressing Base Erosion and Profit Shifting in South Africa." Page 19 (23-12-2014)

8. The Davis Tax Committee "Interim Report: Addressing Base Erosion and Profit Shifting in South Africa." Table 1 Page 20. (23-12-2014)

9. The Davis Tax Committee "Interim Report: Addressing Base Erosion and Profit Shifting in South Africa." Page 20 (23-12-2014) citing the National Treasury Budget (2014).

10. The Davis Tax Committee "Interim Report: Addressing Base Erosion and Profit Shifting in South Africa." Table 2 Page 21. (23-12-2014)

11. The Davis Tax Committee "Interim Report: Addressing Base Erosion and Profit Shifting in South Africa." Table 1 Page 21 28. (23-12-2014)

12. The DTC is cognizant of the positive economic effects of the 2010 World Cup but writes that it is unlikely that the quantum of these monetary flows are explained by a single event. See The Davis Tax Committee "Interim Report: Addressing Base Erosion and Profit Shifting in South Africa." Page 21. (23-12-2014)

13. Transfer pricing documentation, reporting and intangibles are acknowledged in the Report's Annexure. See Actions 8 and 13. The Davis Tax Committee "Interim Report: Addressing Base Erosion and Profit Shifting in South Africa." Page 22. (23-12-2014)

14. Roughly 11% during the year 2010. The Davis Tax Committee "Interim Report: Addressing Base Erosion and Profit Shifting in South Africa." Page 22. (23-12-2014)

15. The Davis Tax Committee "Interim Report: Addressing Base Erosion and Profit Shifting in South Africa." Page 23. (23-12-2014)

16. The Davis Tax Committee "Interim Report: Addressing Base Erosion and Profit Shifting in South Africa." Page 24. (23-12-2014)

17. The Davis Tax Committee "Interim Report: Addressing Base Erosion and Profit Shifting in South Africa." Page 24. (23-12-2014)

18. The Davis Tax Committee "Interim Report: Addressing Base Erosion and Profit Shifting in South Africa." Page 24. (23-12-2014)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.