On a high level, Advance Pricing Agreements (“APA”) allow multinational entities to enter into an agreement with one or more tax authorities were the taxpayer(s) and revenue authority(ies) agree on a transfer price that would be applied by the multinational entity(ies) in transacting with the foreign related entities.
In 2021, SARS issued a discussion paper titled “Proposed Model for Establishing an Advance Pricing Agreement Programme and Release of the Draft Legislation, 2021” to introduce the advance pricing agreement programme in South Africa and provide a model draft legislative framework for the advance pricing agreement unit as well as associated processes at a high level.
SARS later released the draft legislation on the APA programme in July 2023 through the Tax Administration Laws Amendment Bill, 2023 (“TALAB”). The TALAB sets out the draft legislation in clause 10 which indicates that a chapter will be inserted in the Income Tax Act 58 of 1962 (the “Act”) on the APA programme. The draft legislation covers the following among others:
- definitions of various terms related to APA's and not included in the Act,
- provides requirements of persons that would be eligible to apply for the programme,
- outlines fees payable by the applicant as well as fees associated with the APA application,
- compliance procedures associated with approved APAs,
- extension of approved APAs, and
- APA termination procedure.
It is clear based on the purpose of the draft legislation that the chapter is aimed at promoting tax certainty in relation to an ‘affected transaction' as defined in section 31 of the Act. Another area the draft legislation covers is the prevention or minimisation of double taxation and associated dispute resolution procedures (TALAB,2023). However, the chapter provides limited guidance on who would be eligible for the programme. SARS also indicated in the Proposed Model for Establishing an Advance Pricing Agreement Programme and Release of the Draft Legislation that the APA pilot will be based on bilateral APA applications while the SARS unit learns from other jurisdictions and grows their capacity in order expands the programme to include multilateral APA applications.
It would however be interesting to see based on the outcome of the APA programme whether SARS would treat these agreements similarly to Binding Private Ruling which are issued by SARS for the applicant(s) and may only be applied by the applicant(s) or as Binding General Rulings which are issued on matters of general importance and may be applied by any taxpayer. SizweNtsalubaGobodo Grant Thornton's team of transfer pricing experts can assist the taxpayers in ensuring that they are complaint with the South Africa transfer pricing legislation and regulations.
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