Gigaba’s hidden tax message
23 February 2018
By Roxanna Nyiri, Tax Director at BDO
Base erosion and profit shifting concerns are high on politicians’ agendas to protect each country’s tax base, especially with the globalisation of business activity. South Africa is no different.
The Minister of Finance delivered the national budget speech on 21 February 2018 where he emphasised the challenges to ensure that companies pay their fair share of tax in South Africa. In order for SARS to mitigate the risk of companies moving profit to low tax jurisdictions where there may be no underlying substance, they will increase the number of transfer pricing audits.
To identify and evaluate high-level transfer pricing risks, SARS will make use of different tools including the country-by-country report and transfer pricing mandatory questionnaires that needs to be answered when completing a company’s tax return. Therefore, irrespective of whether a multinational meets the country by country threshold to prepare transfer pricing documentation, it would still be required to answer whether it has relevant documentation in support of its cross-border intercompany transactions. If answered in the negative, the taxpayer is at a higher risk of being selected for a transfer pricing audit.
Transfer pricing audits tend to be fact-intensive as they involve detailed evaluations of a taxpayer’s operations, functions, financials and industry information for each cross-border intercompany transaction. Support needs to be provided as to how a taxpayer has established its transfer pricing, as each transfer price charged between related parties in respect of intercompany transactions should be equivalent to those that would have been charged between independent parties in the same circumstances.
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