MEDIUM and large businesses with multinational ties will soon have to start supplying the South African Revenue Service (SARS) with more detailed reports of their relationships and transactions with connected entities residing in other countries.
SARS has beefed up its Transfer Pricing Division and is now actively involved in the international initiative to stop base erosion and profit shifting by multinational companies.
This is according to Patrick Emmett, senior tax consultant at Mazars Port Elizabeth, who says that not only does SARS want to stop this from happening in South Africa, it also wants to stop South African companies from doing the same in other countries.
This initiative aims to stop multinational companies from shifting their profits out of the country to more tax-friendly jurisdictions
Emmett said that this initiative aims to stop multinational companies from shifting their profits out of the country to more tax-friendly jurisdictions.
“A very common way that multinational companies are doing this is by having their subsidiaries pay them a substantial ‘management fee’. The subsidiary can of course deduct this fee from its own income tax, and that money is effectively taken out of the country before there is a chance to tax that profit,” he said.
The Davis Tax Committee has stated that this is one of the main issues of lost tax revenue in South Africa, and has estimated that the amount of money being bled out of the country totals billions of Rand each year, Emmett added.
He pointed out that South African companies will need to take note of a number of new requirements this year, if their tax returns are to remain compliant.
Multinational companies, trusts and individuals in South Africa should consider all transactions with foreign connected persons, whether transacted at arm’s length or not, he said.
Emmett added that companies that are part of a multinational group may have their transactions within the group scrutinised by SARS.
Another thing to take note of is that the South African regulations for country-by-country reporting (CbCR) requires multinational groups with a consolidated revenue in excess of R10-billion to submit a report as set out in the regulation to SARS on an annual basis for years of assessment commencing on or after January 1 last year.
“The parent entity usually files the report in the parent country, but South African subsidiaries with parent companies in other jurisdictions are still obligated to notify SARS in writing which entity would be filing the CbCR and in which jurisdiction,” Emmett said.
“South African companies that form part of a multinational group will need to make sure to understand its group structure and its CbCR reporting obligations and get the new paperwork in order by December 31 this year.”