with the tax changes?
SARS recently updated the ITR14 return (the new dynamic flex income tax return)
for companies to include, inter alia, new disclosure requirements in respect of transfer pricing, cross-border and intra-group transactions, interest, royalties and service fees.
Says Octagon Chartered Accountants: “These changes incorporate certain elements from the final reports on Base Erosion and Profit Shifting (BEPS) published by the Organisation for Economic Cooperation and Development (OECD) as well as Davis Tax Committee recommendations.
“These changes pre-empt the Country-by-Country (CbC) reporting requirements for multi-nationals that will soon be part of our tax legislation.”
Although time will tell how SARS will utilise the additional disclosures, SARS will not be compelled to share the ITR14 information with other jurisdictions.
Specific to transfer pricing, says Octagon, the following information will be required in the ITR14 for years of assessment during which a taxpayer transacted with any non-resident, connected person:
- Per category, the value of transactions (both income and expenditure) with foreign connected persons.
- The jurisdictions of the foreign connected persons transacted with.
- Per category, the value of transactions and jurisdictions transacted with in relation to foreign non-connected persons.
- Certain financial ratios e.g. debt to tangible assets, debt to EBITDA.
- Certain additional question in respect of transfer pricing policies, documentation etc. to be completed.
The ITR14 also require disclosure of the value of service fees for services rendered in South Africa but paid to non-resident service providers, similar to the Reportable Arrangement (RA) gazetted during 2015.
“We note that these requirements are only applicable to medium and large businesses i.e. total assets exceeding R10 million or gross income exceeding R20 million,” advises the charted accounting and tax advisory firm.
How does this apply to you, the taxpayer?
“We suggest taxpayers analyse their accounts and transactions to ascertain whether these additional transfer pricing disclosures will be applicable to them.
“If applicable, taxpayers will need to ensure systems are in place to provide sufficient detail of cross-border transactions and transfer pricing policies in order to complete the ITR14. Changes to disclosures in the Annual Financial Statements of affected taxpayers should also be considered,” says Octagon.
Unfortunately, these changes were introduced with immediate effect meaning that the 2015 year of assessment (and possibly earlier years) will also be subject to the additional disclosure requirements. This may prove to be a problem where systems are not geared to identify cross-border transactions.
According to Octagon, in addition to the amended transfer pricing requirements, taxpayers need to ensure that the usual supporting documentation requirements are still in effect. These include:
- Signed Annual Financial Statements
- IT10 returns for Controlled Foreign Companies
- Withholding tax certificates for section 6quat claims
- IT180 for learnership allowances claimed
- Section 18A certificates for donations to Public Benefit Organisations
- Details of Reportable Arrangements or Voluntary Disclosures
- Information of any trusts a taxpayer may be involved in as founder, settler or beneficiary
- Ministerial Approvals received e.g. Research and Development
Please feel free to contact your friendly Octagon Partner should you need assistance or require more information.