On 1 June 2017, and in terms of section 25 of the Tax Administration Act, 2011 (TA Act), the South African transfer pricing landscape shifted drastically as the South African Revenue Service (SARS) released a draft public notice requiring the submission of Country by Country reporting (CbC reporting), master file and local file returns.
The Notice states that:
- A Reporting Entity (other than a Surrogate Parent Entity) resident in South Africa must submit a return in the form and containing the information specified in the Business Requirement Specification (BRS): CbC and Financial Data Reporting relating to the CbC Report, master file and the local file; and
- If the aggregate of a person’s potentially affected transactions for the year of assessment, without offsetting any potentially affected transactions against one another, exceeds or is reasonably expected to exceed R100 million, the person must submit a return in the form and containing the information specified in the BRS: CbC and Financial Data Reporting relating to the master file and the local file.
South African taxpayers required to submit returns must do so for the Reporting Fiscal years and financial years commencing on, or after, 1 January 2016. Such returns must be submitted within 12 months from the last day of the Reporting Fiscal Year.
The R100 million threshold is in line with the documentation retention requirement that SARS finalised last year. The new notice extends the requirement from documentation retention to actual submission of the required documentation with the tax return. This is a major shift in South African transfer pricing requirements and is evident of SARS’ intention to utilise the transfer pricing framework to comprehensively analyse and challenge taxpayers’ intra-group transactions. SARS has repeatedly highlighted their need to utilise transfer pricing rules to ensure that the correct tax is paid in South Africa.
If taxpayers do not submit the return, they will be contravening the TA Act and a non-compliance penalty could be applicable. The non-compliance penalty would be in addition to any primary and secondary transfer pricing adjustments and related penalties and interest for those adjustments.
SARS’ draft notice has been published for public comment which must be submitted on or before 22 June 2017. Grant Thornton’s Transfer Pricing team believes that the majority of comments are expected to focus on the date (1 January 2016) as this will result in taxpayers that may already have filed their 2016 returns to unintentionally contravene the TA Act and require a resubmission/refiling.
It will be imperative for multinational companies to work closely with their tax teams to ensure that their transfer pricing affairs are in order, that all elements are documented accordingly and that the right information is in place.
For further information or for assistance with the new transfer pricing requirements, please contact our Transfer Pricing team: