South Africa releases specific draft regulations for country-by-country tax reporting
South African multinational group companies (MNEs) face increased scrutiny and tax administration obligations following the release of draft regulations by SARS on 11 April 2016 related to country-by-country (CbC) reporting.
The aim of the draft regulations is to bring South Africa in line with the proposals contained in the Base Erosion and Profit Shifting (BEPS) project spearheaded by the Organisation for Economic Co-operation and Development (OECD).
The draft regulations are closely modelled on the OECD BEPS Action Point 13 and stipulate that the first reporting period is to commence for reporting fiscal years starting on or after 1 January 2016. The first CbC reports will be required to be filed with SARS from 31 December 2017.
The draft regulations set out key definitions and thresholds in order to determine which South African tax resident companies have to file CbC reports.
The key points of reference are:
- Filing obligations require a South African tax resident which is an ultimate parent entity of an MNE Group with consolidated revenue of more than R10 billion to file a CbC report.
- South African tax residents, other than ultimate parent entities, must file a CbC report in the case where the ultimate parent entity is not obliged to file a CbC report in its tax jurisdiction, or where the other jurisdiction does not have a Qualifying Competent Authority Agreement in place with South Africa.
- The draft regulations also provide for a Systematic Failure which covers scenarios in which a Competent Authority may have suspended the automatic exchange of information or failed to share the CbC reports with South Africa.
- A South African member of an MNE Group will have to notify SARS no later than 12 months after the last day of the Reporting Fiscal Year on which member within the MNE Group is filing the CbC report and in which tax jurisdiction. The timing of the notice is in line with the timing of the filing.
The draft regulations require a CbC report to contain the following:
- Aggregate information relating to the amount of revenue, profit (loss) before income tax, income tax paid, income tax accrued, stated capital, accumulated earnings, number of employees, and tangible assets other than cash or cash equivalents with regard to each jurisdiction in which the MNE Group operates.
- An identification of each member of the MNE Group, setting out the jurisdiction of tax residence and where this is different from such jurisdiction of tax residence, the jurisdiction under the laws of which such a member is organised, and the nature of the main business activity or activities of such a member.
The draft regulations also explicitly state that “SARS must only use the Country-by-Country Report for purposes assessing high-level transfer pricing risks and other base erosion and profit shifting related risks in South Africa, including assessing the risk of non-compliance by members of the MNE Group with applicable transfer pricing rules, and where appropriate for economic and statistical analysis. Transfer pricing adjustments by SARS may not be based on the Country-by-Country Report.”
Additionally it is stated that SARS must preserve the confidentiality of the information contained in the CbC report.
If the draft regulations are implemented, it will have an impact on South African multinational group companies and it is important to understand what this impact is and which entity within the group will be responsible to file the CbC report. If you have any questions, or would like to discuss this further, please contact: