Most Read Contributor in South Africa, September 2016
On 24 February 2016, the Minister of Finance announced in the
Budget Speech that South Africa was working with other countries to
combat base erosion and profit shifting
("BEPS"). Accordingly, large
multinationals with head offices in South Africa will be required
to submit Country-by-Country ("CbC") reports to the South
African Revenue Service ("SARS") as recommended
by the Organisation for Economic Co-operation and Development
("OECD") in its BEPS "Action Plan
13: Re-examine Transfer Pricing Documentation".
The CbC report will include the global allocation of income and
taxes paid, indicators of the location of economic activity within
the group, as well as information about which entities in the group
do business in a particular jurisdiction and the business
activities each entity engages in.
The CbC reports will be exchanged between SARS and tax
authorities in 31 different jurisdictions following the
signing of a Multilateral Competent Authority Agreement for the
automatic exchange of CbC reports by the South African Government
on 27 January 2016.
The legislation to give effect to the announcement and the
explanatory memorandum to describe how SARS will apply the law and
implement CbC in South Africa has not been made available as yet,
but is expected to be included in the Taxation Laws
Amendment Bill to be published later this year. When
drafting legislation, South Africa has in the past, made reference
to the legislation of a number of countries, most notably Australia
and the United Kingdom.
Accordingly, it is possible that in drafting the CbC
legislation, SARS and National Treasury will make reference to the
Australian legislation to implement CbC reporting which was enacted
in December 2015. The Australian Tax Authority
("ATO") also developed a Law Companion
Guideline (LCG 2015/3) that describes how it will implement the CbC
reporting requirements in Australia. Interestingly, in terms of the
CbC reporting applies to years starting on or after 1 January
the threshold for a reporting entity in Australia is an
"annual global income" of A$1-billion, as this threshold
is considered to represent a near equivalent amount in Australian
currency to the OECD recommended threshold €750-million. In
South Africa, the Davis Committee recommended a threshold of
the "annual global income" of a global parent entity
for a period is the group's total annual income as shown in its
latest global financial statements for the period whether that
income is disclosed as a single line or in multiple lines in those
financial statements. For example, income from a joint venture
should be included in the group's annual global income by
whichever method is used to report that income
the ATO will not require information that goes beyond what the
OECD guidance recommends. In South Africa, the Davis Committee
recommended that that the CbC report should contain additional
transactional data regarding related party interest payments,
royalty payments and related party service fees
the ATO will have the discretion to exempt an entity from CbC
reporting by written notice, or by legislation exempt a specified
class of entities from CbC reporting
where accounts are recorded in a foreign currency, the currency
conversion rules should be applied in compliance with the
Australian legislation and not as per the recommendation of the
OECD to translate amounts at the average exchange rate for the
Given the announcement in the Budget Speech and likely
publication of the CbC legislation in Taxation Laws Amendment Bill
to be released later this year, large multinationals with
head offices in South Africa are encouraged to start developing
policies and procedures in preparation for implementation of the
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Effective collaboration amongst government agencies, automation of processes and capacity building by tax authorities have always been identified by stakeholders as strategies for achieving an efficient tax system.
In response to information provided by FIRS, NSE has sent letters to publicly listed companies, who were purportedly identified by FIRS as non-compliant.
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