South Africa - Draft Notice To Submit CbC, Master File And Local File Returns

On 2 June 2017, the South African Revenue Service (“SARS”) has published a draft public notice requiring the submission of country-by-country (“CbC”), master file and local file returns. This marks an important step towards the finalisation of South Africa’s transfer pricing documentation requirements.

"Three-tiered" approach

As a result of the work on the base erosion and profit shifting (“BEPS”) project, the OECD’s Transfer Pricing Guidelines for Multinational Enterprises and Tax Authorities now include recommendations for a “three-tiered” approach to transfer pricing documentation (i.e. CbC report, master file and local file), which South Africa is in the process of implementing.

The outstanding piece of the puzzle

Following the finalisation of the transfer pricing record-keeping requirements in October 2016 and the CbC reporting regulations in December 2016, the major outstanding piece of the puzzle from a South African perspective has been the publication of the specific form and content requirements for the master file and local file as well as the legislative requirement to actually submit these documents, rather than simply keeping them on record.

The draft notice, issued in terms of section 25 of the Tax Administration Act, 28 of 2011, provides the first indication of the form which this submission will take.

The important points emerging from the draft notice are as follows:

  • The information required and the form in which it will be submitted are to be set out in a business requirement specification (“BRS”) for CbC and Financial Data Reporting. The BRS itself does not appear to have been published at this stage, but it seems that it will specify information relating to all three levels of documentation (i.e. CbC report, master file and local file).
  • A Reporting Entity, as defined in the CbC regulations, will be required to submit the information in the BRS relating to all three tiers of documentation (i.e. CbC report, master file and local file).
  • A person whose aggregate potentially affected transactions (essentially cross-border transactions with a connected person) for the year of assessment exceed or are reasonably expected to exceed R100 million for the year of assessment, will only be required to submit the information in the BRS relating to the master file and local file. We note that this threshold matches that for keeping structural and operational records in terms of the record-keeping requirements.
  • Returns will be submitted electronically via eFiling.

Six months to prepare

We further note that the draft public notice requires taxpayers to submit returns for the financial years or, in the case of CbC reports, the Reporting Fiscal Years (as defined in the CbC regulations), commencing on or after 1 January 2016. Returns will be due within 12 months of the end of the taxpayer’s financial year or Reporting Fiscal Year. Therefore, depending on the specific year-end of the taxpayer, returns will be due from 31 December 2017 onwards. This leaves taxpayers little more than six months to prepare.

BRS

We note that, while comments on the draft notice are due by 22 June, 2017, the draft notice itself contains very little information on which to comment, since the form and content of the return will be governed by the BRS. On this basis, it will be important that SARS releases the BRS as soon as possible so that meaningful comments can be submitted before the deadline of 22 June 2017.

Source: Jens Brodbeck, ENSAfrica (TPA Global alliance partner)

TPA BEPS Desk

Transfer Pricing Associates introduces TPA BEPS Desk. If you have any questions, or need more detailed advice on any aspects of BEPS related issues, please get in touch with us. The TPA Global network has alliance partners throughout the world, and the network can provide multi-disciplinary approach on today's critical transfer pricing challenges faced by multinational enterprises.

Copyright © 2017
Transfer Pricing Associates BV.
All rights reserved.
 

H.J.E. Wenckebachweg 210
1096 AS Amsterdam
T: +31 20 462 3530
E: info@tpa-global.com
I: www.tpa-global.com