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Experts wary of new proposals to combat ‘tax erosion’

17 September 2014   (0 Comments)
Posted by: Author: Amanda Visser
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Author: Amanda Visser (BDlive)

The Organisation of Economic Co-operation and Development (OECD) has published the first set of "deliverables” and measures countries can use to prevent the erosion of their tax base when multinationals shift their profits to low-tax jurisdictions.

Tax experts in SA warned on Tuesday that the detailed proposals would have a significant effect on the international tax system, including that of SA.

PwC International tax partner David Lermer said some of these reports on effective combating of base erosion and profit shifting (Beps) referred specifically to SA’s requirements for country-by-country transfer pricing documentation.

"This dovetails with recent requirements for nonresidents providing services in SA to register for tax regardless of whether they have a taxable presence,” Mr Lermer said.

The OECD said the first set of measures was intended to neutralise hybrid mismatches — for example, between debt and equity.

Treaty shopping and other forms of treaty abuse would be addressed.

Abuse of transfer pricing rules in the key area of intangibles, such as intellectual property, would be minimised and country-by-country reporting would provide governments with information on the global allocation of the profits, economic activity and taxes of multinational enterprises.

Mr Lermer said the effect of Beps was felt in areas where discretionary powers were exercised by the South African Revenue Service, especially in the fields of transfer pricing assessments and advance tax rulings.

South African Institute of Tax Professionals CEO Stiaan Klue said on Tuesday the equitable distribution of revenue was one of the major objectives of the Beps project.

According to the OECD, up to 70% of world trade is now estimated to be between related parties, or multinational companies providing goods and services to each other in cross-border transactions.

However, only 60 governments have adopted transfer pricing rules to curb base erosion.

This article first appeared on bdlive.co.za.



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