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.
Authored by Limahl Sukhlal
Compiling a Master File and Local Files to comply with the transfer pricing documentation retention requirements of SARS is time consuming process, especially where no transfer pricing policy or transfer pricing reports have been prepared before. Therefore, with the deadlines for Master Files and Local Files fast approaching, time is running out and MNEs need to attend to complying with SARS’ documentation requirements as a matter of urgency.