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BEPS Action 8 on Hard-to-Value Intangibles

Thursday, 20 July 2017   (0 Comments)
Posted by: Authors: Lavina Daya and Ivette du Toit
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Authors: Lavina Daya and Ivette du Toit (ENSafrica)

One of the main action items identified by South Africa’s National Treasury in its summary of the country’s position on the G20/Organisation for Economic Co-operation and Development (“OECD”) action plan on base erosion and profit shifting (“BEPS”), is the requirement for the South African Revenue Service (“SARS”) to update the Transfer Pricing Practice Note in line with the OECD Transfer Pricing Guidelines to include new guidance on the arm’s length principle and an agreed approach to ensure appropriate pricing on intangibles that are difficult to value. 

Action 8 of the BEPS Action Plan mandated the development of transfer pricing rules or special measures for the transfer of Hard-To-Value Intangibles (“HTVI”) and the general rules of how to deal with HTVI can be found in section D.4 of the revised chapter VI of the OECD Transfer Pricing Guidelines, contained in the 2015 Final report on Actions 8-10: “Aligning Transfer Pricing Outcomes with Value Creation” (“BEPS TP Report”), which is now formally adopted as part of the OECD Transfer Pricing Guidelines. However, the BEPS TP Report also mandated the development of guidance for tax administrations on the implementation of the approach to HTVI (“HTVI Implementation Guidance”). Although the transfer of intangibles by a South African resident to a related party non-resident is currently restricted in terms of South African exchange control regulations, the approach towards HTVI is regarded as one of the main focus areas of SARS and therefore, it appears highly unlikely that SARS will issue an updated version of its Transfer Pricing Practice Note until the HTVI Implementation Guidance has been finalised by the OECD.

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