South Africa

South Africa: SARS releases draft taxation amendment bill for public comment

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The National Treasury and the South African Revenue Service (SARS) published on 19 July 2017 for public comment the 2017 Draft Taxation Laws Amendment Bill (TLAB) and the 2017 Draft Tax Administration Laws Amendment Bill (TALAB). Together with the 2017 Draft Rates and Monetary Amounts and Amendment of Revenues Laws Bill (Rates Bill) published on 22 February 2017, these three draft Bills give effect to the tax proposals announced on Budget Day (22 February 2017), as published in the budget review.

The two draft Bills include most of the more complex and administrative tax proposals but exclude the proposals dealt with in the 2017 Draft Rates Bill, such as changes to the personal income tax brackets and rates and excise duties, and the introduction of the Health Promotion Levy.

Significant proposals contained in the 2017 TLAB include the removal of the foreign employment income tax exemption in respect of South African residents; measures to address the circumvention of anti-avoidance rules dealing with share buy backs, dividend stripping and contributed tax capital; measures to strengthen anti-avoidance rules relating to mining environmental rehabilitation funds; and the extension of controlled foreign company rules to interposed foreign trusts and foreign foundations.

South Africa-Turkey amending protocol enters into force

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The amending protocol to the double tax agreement between South Africa and Turkey entered into force on 15 July 2017, according to a SARS notification published on 28 July 2017. The protocol was signed at Pretoria on 3 March 2005 to amend the agreement for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income.

South Africa: SARS issues country by country reporting, master file and local file guidance

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On 23 June 2017, the South African Revenue Service (SARS) released an external Business Requirements Specification (BRS) document concerning Country-by-Country and Financial Data reporting. The document contains the draft public notice requiring the submission of CbCR, Master File and Local File.

According to external Business Requirements Specification (BRS), the master file should include the nature of its global business operations, its overall transfer pricing policies, and its global allocation of income and economic activity, in order to assist tax administrations to evaluate any significant transfer pricing risk. The master file is generally compiled by a parent or headquartered Entity but is available to and may be obtained from all Entities of an MNE. In general, the master file is intended to provide a high-level overview, in order to place the MNE’s transfer pricing practices in their global economic, legal, financial and tax context.

Local file must be compiled and kept by all MNE Entities and will provide more detailed information relating to specific intercompany transactions. The information required in the local file supplements the master file and helps to meet the objective of assuring that an Entity of the MNE has complied with the arm’s length principle in its material transfer pricing positions affecting a specific jurisdiction. The local file focuses on information relevant to the transfer pricing analysis related to transactions taking place between a local country affiliate and associated enterprises in different countries and which is material in the context of the local country’s tax system.

For the CbC Report, the Reporting Entity is required to complete the CbC01 Form and before the user can complete the submission process, the user will be required to formally declare that the information captured on the CbC01 form is true and correct. The format of the form will be an Adobe form developed by SARS. The form will contain all the defined fields to compliment the CbC Report required as per the CbC XML Schema.

South Africa issues guidance on VAT on non-executive director fees

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The South African Revenue Service issued guidance on the value added tax (VAT) treatment of fees paid to non-executive directors. On 10 February 2017, SARS issued binding general ruling (BGR) 41 which confirms that a non-executive director (NED) who carries on an enterprise in or partly in South Africa is required to register and charge VAT in respect of any director’s fees earned for services rendered as an NED if the value of such fees exceeds R1 million in any consecutive 12-month period.

A NED is required to register and charge VAT on fees with effect from 1 June 2017. In addition, a NED may also choose to register for VAT on a voluntary basis where the fees earned are a minimum of R50 000 in a 12-month period. SARS has been receiving several operational queries regarding the VAT registration process and in particular, practical considerations for non-resident NEDs.

South Africa and U.S. sign an agreement on the exchange of country-by-country reports

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The competent authorities of South Africa and the U.S. have concluded an arrangement on the exchange of Country-by-Country Reports. On June 5, 2017 the South African Revenue Service (SARS) released the text of the arrangement. According to SARS the agreement was signed on May 8, 2017 in Pretoria and May 26, 2017 in Washington D.C.

Both countries desire to increase international tax transparency and improve access of their respective tax authorities to information regarding the global allocation of the income, the taxes paid, and certain indicators of the location of economic activity among tax jurisdictions in which multinational enterprise groups (“MNE Groups”) operate through the automatic exchange of annual country-by-country reports (“CbC Reports”), with a view to assessing high-level transfer pricing risks and other base erosion and profit shifting related risks, as well as for economic and statistical analysis, where appropriate.

The first fiscal year for which the U.S. and South Africa intend to exchange CbC Reports is for the fiscal years of MNE Groups commencing on or after January 1, 2016. Such CbC Report is intended to be exchanged as soon as possible and no later than 18 months after the last day of the fiscal year of the MNE Group to which the CbC Report relates. CbC Reports with respect to fiscal years of MNE Groups commencing on or after January 1, 2017 are intended to be exchanged as soon as possible and no later than 15 months after the last day of the fiscal year of the MNE Group to which the CbC Report relates.

The Competent Authorities intend to exchange the CbC Reports automatically through a common schema in Extensible Markup Language (XML). The Competent Authorities intend to work toward and decide on one or more methods for electronic data transmission including encryption standards.

South Africa: SARS publishes draft notice on BEPS related compliance

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On June 1, 2017, the South African Revenue Service (“SARS”) published a draft public notice requiring the submission of country-by-country (“CbC”) reports, a master file and a local file by groups with turnover above a specified threshold.

The draft public notice is to be issued under section 25 of the Tax Administration Act, 2011, which enables the Commissioner to require specified persons to submit returns as provided in the public notice.

A Reporting Entity (other than a Surrogate Parent Entity) resident in South Africa must submit a return in the form and containing the information specified in the BRS: CbC and Financial Data Reporting relating to the CbC Report, master file and the local file.

In accordance with the Draft Regulations, it is proposed that where the ultimate parent entity of an multinational enterprise is a South African tax resident and has a consolidated group turnover of more than R10 billion it must file a CbC report with SARS.

The CbC report must be filed submitted electronically using the SARS eFiling platform, no later than 12 months after the financial year end of the multinational group. The Draft Regulations are effective for financial year ends commencing on or after 1 January 2016 and accordingly, the first CbC reports should be filed with SARS from 31 December 2017.

Comments on the draft notice must be submitted on or before 22 June 2017.

South Africa: SARS introduces improvements to the dispute management process

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On 15 May 2017 the South African Revenue Service (SARS) introduced important changes and improvements to its current dispute management process as part of its ongoing commitment to delivering a better service to taxpayers.

The following changes have taken place regarding the dispute management process;

Request for Reasons: SARS has, for the first time, implemented an electronic Request for Reasons via eFiling or via the SARS branches. The Request for Reasons automated functionality has been implemented for Personal Income Tax (PIT), Company Income Tax (CIT) and Value-Added Tax (VAT). The Request for Reasons functionality allows taxpayers to request reasons for an assessment where the grounds provided in the assessment do not sufficiently enable a taxpayer to understand the basis of the assessment and to formulate an objection if the taxpayer is aggrieved by the assessment.

Once the system has identified that a valid Request for Reasons has been submitted, the period within which an objection must be lodged will be automatically extended for the period permitted by the Dispute Resolution Rules. The Request for Reasons case management workflow further allows SARS to improve its tracking and management of the Request for Reason process.

Request to allow late submission of an objection or appeal for PIT, CIT and VAT: The new dispute management process introduces a separate workflow whereby the taxpayer is now allowed to submit the Request for Reasons, Notice of Objection (NOO) or Notice of Appeal (NOA) after the periods prescribed by the Dispute Resolution Rules have lapsed. Prior to the introduction of the separate workflow, this process was included in the actual dispute process. Where the request for late submission of a Request for Reasons, NOO or NOA was not successful, the previous dispute process caused confusion regarding the outcome of the dispute and regarding what would be the next available step in the dispute process.

The new automated process allows SARS to attend to the request for late submission before the Dispute or Request for Reasons case can be created and considered by SARS. If the Request for Reasons, NOO or NOA is submitted late, the taxpayer will be prompted to provide reasons for the late submission. The new process will ensure that the request for late submission is aligned with the legislation as SARS will now inform the taxpayer upfront that the submission is late instead of classifying the dispute as invalid.

Suspension of VAT payments: Taxpayers are now able to request suspension of payments pending the outcome of a VAT dispute via eFiling or at a SARS branch. This is in line with the suspension of payments that was already implemented for PIT and CIT in 2015.

e-Filing Guided Process (PIT, CIT and VAT): To assist taxpayers in following the correct dispute sequence and completing all the information required, eFiling has been made an entirely guided process. The eFiling guided process will ensure that the dispute is submitted according to legislative requirements thereby eliminating any invalid disputes from being submitted to SARS.