Treasury clamps down on tax leakage

Amid global efforts to combat profit shifting.

PRETORIA – In line with international efforts to combat tax avoidance, National Treasury on Wednesday said it is taking further steps to curb financial leakage.

With government under pressure to collect more revenue amidst dwindling economic growth, Finance Minister Nhlanhla Nene on Wednesday said these leakages deprive the economy of billions through tax base erosion, profit shifting and illicit money flows.

Base erosion and profit shifting (Beps) has been under the spotlight internationally as international governments seek to get more revenue from multi-national corporations who are perceived to be avoiding taxes.

According to the Organisation for Economic Co-operation and Development (OECD), Beps includes “tax planning strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations where there is little or no economic activity, resulting in little or no overall corporate tax being paid”.

Nene said the South African Reserve Bank (Sarb) and the South African Revenue Service (Sars) work closely together to monitor capital flows.

“This assists in identifying movements of funds for tax reasons. Internationally there is increasing collaboration between bank regulators and tax authorities, and so progress is being made to reduce both capital leakage and tax evasion,” Nene said.

The Davis Tax Committee, which has been tasked with a comprehensive review of the tax system, released its report on Beps late last year.

Nene said in line with advice from the committee, amendments will be proposed to improve transfer-pricing documentation and revise the rules for controlled foreign companies and the digital economy.

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