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Time is running out for transfer pricing documentation compliance

Monday, 21 May 2018   (0 Comments)
Posted by: Author: Limahl Sukhlal
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Author: Limahl Sukhlal (ENSafrica)

In terms of the South African Income Tax Act, 1962 (the “Act”), transfer pricing adjustments are made in circumstances where multinational entities transact at prices that do not reflect prices expected to be charged if parties to the transaction were independent persons dealing at arm’s length. 

Base Erosion and Profit Shifting (“BEPS”) refers to tax planning strategies that shift profits from high tax jurisdictions like South Africa to locations where little or no corporate tax is being paid.

In order to provide governments with the necessary domestic and international instruments to prevent companies from paying limited amounts of taxes, the Organisation for Economic Co-operation and Development (“OECD”) formulated the BEPS Action Plan at the request of the G20. The BEPS Action Plan applies to all OECD member countries as well as G20 countries. In addition to this, countries that are not members of the OECD or the G20, such as South Africa, can also follow the guidelines set out in the BEPS Action Plan.

The BEPS Action Plan consists of 15 Action Points with the objective of minimising or eliminating transactions that erode or decrease a multinational entity’s tax base by routing its profits from high tax jurisdictions to low tax jurisdictions. The overriding concept of the BEPS Action Plan is that all taxable profits should be taxed once.

Among the 15 Action Points addressed in the BEPS Action Plan, Action 13, which provides guidance on transfer pricing documentation and country-by-country reporting (“CbCR”), provides one of the bigger challenges to taxpayers in terms of transparency and disclosure. In addition, several other action points build on the disclosure requirements set out in Action 13.

The purpose of this Action Point is to re-examine transfer pricing documentation by developing rules to enhance transparency, including a requirement that multinational entities provide information to all governments in all countries in which it operates. The information to be provided to the local governments includes the allocation of income, the level of economic activity taking place in that jurisdiction, and taxes paid amongst countries in accordance with a standardised template.

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This article first appeared on ensafrica.com.


 

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