Tax update: Country-by-Country reporting
17 Apr 2018
In 2013, in order to address the differences in tax systems of multiple countries, the Base Erosion and Profit Shifting (“BEPS”) Action Plan was adopted by the Organisation for Economic Cooperation and Development (“OECD”) and G20 countries, including South Africa. This resulted in the development of Country-by-Country (“CbC”) reporting that requires Multinational Entity (“MNE”) Groups to report on their operations in all countries they operate in, allowing revenue authorities to assess transfer pricing and other BEPS related risks with regards to the MNE Groups operating in their countries.
Regulations to implement the CbC reporting requirements were finalised in South Africa in 2016. In late 2017, SARS issued the External Business Requirements Specification document, setting out CbC and Financial Data Reporting (“FDR”) requirements. South Africa’s master file and local file requirements are in line with the OECD’s requirements and local taxpayers are now obliged to submit transfer pricing-related returns.
A notification must be filed with SARS telling them if the constituent entity of a multinational entity (“MNE”) group that is a resident in South Africa for tax purposes is the “ultimate parent” or the “surrogate parent entity.” If the entity is neither the ultimate parent nor the surrogate parent entity, details about the identity and tax residence of the reporting entity is required to be reported to SARS no later than 12 months after the last day of the reporting fiscal year of the MNE group. The submission of CbC reports, master file and local file returns is electronic, via a FDR system accessible via the SARS e-filing platform.
Information submitted in the CbC report is exchanged automatically between SARS and those countries who are signatories to the Multilateral Competent Authority Agreement, as well countries that South Africa has entered into an intergovernmental agreement with for the purposes of the automatic exchange of information. Master file information will only be made available to other tax administrations in terms of the exchange of information rules and then only “on request”. Local file information will only be made available by SARS to other tax administrations under “exceptional circumstances”.
CbC reporting must contain information as required in the BEPS Action 13 final report. OECD Guidance on the Implementation of Country-by-Country Reporting contains a number of items of interpretative guidance prepared in response to questions raised by tax authorities and business on aspects of the BEPS Action 13 minimum standard.
One must keep in mind that although these transfer pricing returns may not form part of the annual income tax return, yet the due dates of all returns (CbC reports, master file and local file returns) can coincide.
- Legislation to implement Country-by-Country reporting in South Africa
- The “PITfalls” identified by SARS’ 2017 Tax Statistics
- Global transfer pricing risk management