The South African Revenue Service (Sars) has published additional record-keeping requirements for large multi-national companies which they will have to comply with in future.
Many companies have already included some of the required information in their transfer pricing documentation and on their annual tax returns, but there seems to be uncertainty about the format in which it must be available to Sars.
Karen Miller, Deloitte’s Western Cape transfer pricing leader, says it is unclear whether Sars is endorsing the country-by country reporting recommendations made by the Organisation for Economic Cooperation and Development (OECD).
The OECD last year finalised comprehensive measures to combat base erosion and profit shifting (Beps) after three years of intensive research and international cooperation.
One of the plans include the exchange of information between tax authorities and the need for multi-nationals to do country-by-country reporting that will assist tax authorities with their risk management process.
The OECD developed a template to ensure that there are not 20 or 30 different templates or different requests for information by tax administrators.
Miller, who is also chair of the South African Institute of Tax Professionals’ (Sait) international tax committee, says the new requirements in itself are not overly onerous.
“Taxpayers have already been aware that preparing transfer pricing documentation is best practice and the existing tax return already contains some questions similar to the information requested,” she says.
The additional information is what was expected to be brought in through the country-by-country reporting template. It is just the format in which Sars wants this information which is uncertain, Miller adds.
Sait says that a good example of what country-by-country may look like was issued by the US Treasury in late December in draft form. The proposed group threshold for the US reporting is $850 million per annum.
In terms of South African legislation a person must keep records, books of account or documents if he/she is a member of a group with a consolidated turnover of R1 billion or more in South Africa and has entered into a potentially affected transaction.
Potentially affected transactions are subject to Section 31 of the Income Tax Act. It was introduced in 1995 to grant the Sars commissioner power to adjust tax calculations where a taxpayer was involved in cross-border transactions which were not at arm’s length.
Justin Liebenberg, international tax leader for EY, says the OECD has set the turnover threshold for companies at EUR 750 million.
“That turnover threshold is substantially higher than the turnover threshold of R1 billion in South Africa. The requirements would be more onerous for those taxpayers with a consolidated South African revenue of R1 billion and up. For companies with a lower turnover, there do not seem to be many changes.
He adds that one of the requirements calls for a summary of financial forecasts which are contemporaneous with financial assistance.
“One of the main concerns is that it can be very cumbersome for taxpayers to prepare contemporaneous financial forecasts. Based on our experience, taxpayers prepare financial forecasts for commercial reasons.”
To prepare it for the mere purpose of an intercompany loan, without any thresholds, may be considered unreasonable by certain taxpayers, Liebenberg adds.
Affected parties have until February 5 to submit comments on the additional requirements.