7 January 2016
Global Tax Alert
News from Transfer Pricing
South Africa Revenue
Service releases
Draft Notice on
additional recordkeeping for transfer
pricing transactions
EY Global Tax Alert Library
Access both online and pdf versions
of all EY Global Tax Alerts.
Copy into your web browser:
www.ey.com/taxalerts
On 15 December 2015, a draft notice (Draft Notice) in terms of section 29
of the Tax Administration Act, 2011, was issued by the South Africa Revenue
Service (SARS) setting out additional record-keeping requirements for
“potentially affected transactions.”1 It contains a schedule (the Schedule) that
requires that the persons specified must keep and retain the records, books of
account or documents prescribed in the Schedule.
The Schedule divides persons into two categories, namely, those with a
“consolidated South African turnover” of R1 billion (approx. US$64 million)
and above and those below such figure. Consolidated South African turnover is
defined as the total consolidated turnover of a group that is subject to normal
tax in the Republic. Paragraph 4 of the Schedule requires a person who is a
member of a group with a consolidated South African turnover of less than
R1 billion to keep and retain the records, books of account or documents that
enable the person to ensure, and SARS to be satisfied, the person’s potentially
affected transactions are conducted at arm’s length. This is very similar
wording to the current section 31 of the Income Tax Act which has, in the past,
created uncertainty with companies as to whether formalized transfer pricing
documentation was a requirement.
For persons with consolidated South African turnover of R1 billion or more,
paragraph 3 of the Schedule sets out in detail the records, books of account
and/or documents that must be kept and retained. These include, among
others, the following (labelled as per the Schedule):2
2
Global Tax Alert Transfer Pricing
•(a) A description of the person’s ownership structure, with
details of shares or ownership interest held therein by
other persons
•(e) Copies of contracts or agreements related to the
potentially affected transactions entered into by the person
with each connected person
•(h) A description of the functions performed, risk assumed
and assets employed by the person and connected persons
involved in the potentially affected transactions
•(i) A description of the intangible assets involved in the
potentially affected transactions, and their influence on the
pricing of the potentially affected transactions
•(k) With respect to the tested party, a detailed allocation
of revenues, costs, expenses and profits between its
transactions with connected persons and transactions with
independent persons, including records of the application
of the transfer pricing policy and information showing how
the financial data used in applying the transfer pricing
method reconciles to the annual financial statements
•(l) If the financial data for the purpose of subparagraph (k)
cannot be directly allocated, an explanation supporting the
allocation rationale and documentation that demonstrates
how the allocation was carried out
•(m) The comparable data and methods considered and
used for determining the arm’s length return and analysis
performed to determine the transfer prices or the
allocation of profits and losses or contributions to costs
•(p) With respect to potentially affected transactions
that are financial assistance transactions, the following
additional information:
−−Description of the funding structure
−−Description of the business and the plans of the principle
trading operations
−−Copies of relevant financial assistance agreements and
other relevant documents
−−A group structure
−−Copies of financial statements and management accounts
just before the point in time the financial assistance is
obtained and after the financial assistance transaction
•(q) A summary of financial forecasts which are
contemporaneous with the financial assistance
transactions in question, projected as far as is meaningful
in relation to the period of the funding transactions, including
a clear picture of the expected levels of interest cover, gearing
or other relevant measures over the forecast period
•(s) Any other information, data or document, including or
relating to a connected person, which may be relevant for the
determination of the arm’s length return under Section 31(2)
of the Income Tax Act
An important aspect of the Draft Notice is that, where a
tested party is outside of South Africa, considerable amounts
of information need to be provided in relation to that tested
party. This information includes:
•Contracts between the tested party and its customers and
suppliers
•Commercial invoices between the tested party and its
customers and suppliers
•Segmented financial information per potentially affected
transaction
In summary, the Draft Notice proposes extensive
documentation requirements for persons with consolidated
South African turnover of R1 billion or more. The Draft Notice,
if finalized, would provide guidance on what records a taxpayer
must keep and as such taxpayers should consider to which
extent this affects them. Comments by interested parties are
required to be submitted to SARS on or by 5 February 2016.
Alternatively, if you wish for your comments to be submitted
as part of the EY response, please provide these to us by 27
January 2016.
−−An analysis of the financial strategy of the business
Endnotes
1. Defined as a transaction, operation, arrangement, scheme or understanding with a foreign connected person.
2. The full list and the Public Notice can be found here: http://www.sars.gov.za/AllDocs/LegalDoclib/Drafts/LAPD-LPrepDraft-2015-66%20-%20Draft%20Notice%20in%20terms%20on%20section%2029%20Tax%20Administration%20Act.pdf.
Global Tax Alert Transfer Pricing
For additional information with respect to this Alert, please contact the following:
Ernst & Young Advisory Services (Pty) Ltd, Johannesburg
•
•
•
•
Justin Liebenberg
Michael Hewson Michel Verhoosel Valdis Leikus +27 11 772 3907
+27 11 772 5006 +27 11 502 0392 +27 11 502 0504
Ernst & Young Advisory Services (Pty) Ltd, Cape Town
• Marcus Stelloh +27 21 443 0660 justin.liebenberg@za.ey.com
michael.hewson@za.ey.com
michel.verhoosel@za.ey.com
valdis.leikus@za.ey.com
marcus.stelloh@za.ey.com
3
EY | Assurance | Tax | Transactions | Advisory
About EY
EY is a global leader in assurance, tax, transaction
and advisory services. The insights and quality
services we deliver help build trust and confidence
in the capital markets and in economies the world
over. We develop outstanding leaders who team to
deliver on our promises to all of our stakeholders.
In so doing, we play a critical role in building a better
working world for our people, for our clients and for
our communities.
EY refers to the global organization, and may refer to
one or more, of the member firms of Ernst & Young
Global Limited, each of which is a separate legal entity.
Ernst & Young Global Limited, a UK company limited
by guarantee, does not provide services to clients.
For more information about our organization, please
visit ey.com.
Transfer Pricing Group
© 2016 EYGM Limited.
All Rights Reserved.
EYG no. CM6123
1508-1600216 NY
ED None
This material has been prepared for general informational
purposes only and is not intended to be relied upon as
accounting, tax, or other professional advice. Please refer
to your advisors for specific advice.
ey.com