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South Africa: Reminder of transfer pricing documentation compliance requirements

South Africa: Transfer pricing documentation

The South African Revenue Service (SARS) has thus far indicated that no extensions or concessions will be allowed for the late or non-submission of returns and payments on the basis of the coronavirus (COVID-19) pandemic—and this apparently also applies with regard to transfer pricing documentation compliance.

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South African transfer pricing documentation compliance requirements

With regard to transfer pricing in South Africa, taxpayers need to observe various different requirements and obligations.

  • Taxpayers meeting the R100 million “potentially affected transactions” threshold

A taxpayer with potentially affected transactions for the year, the amount of which exceeds R100 million in aggregate (without offsetting transactions against each other), must prepare and file electronically, with SARS, transfer pricing documentation consistent with the Master file and/or Local file format as described by SARS. The Master file and/or Local file must be prepared and filed with SARS within 12 months from the end of the relevant year of assessment.

In addition, a taxpayer meeting the threshold must also prepare and retain certain transfer pricing related documentation. There are specific additional documentation requirements set out for individual transactions exceeding, or reasonably expected to exceed, R5 million.

  • Taxpayers required to submit a country-by-country (CbC) notification

South African resident taxpayers forming part of a multinational group with turnover in excess of R10 billion (or the equivalent amount of €750 million)—when a group entity files the CbC report in a country with which South Africa has a suitable agreement for the automatic exchange of CbC reports—must notify SARS, in the prescribed format, of certain information relating to the CbC report including the identity of the entity that has filed or will file the CbC report. The notification must be submitted to SARS within 12 months from the end of the relevant fiscal year. 

The mechanism for submitting the CbC notification is by email to a dedicated SARS email address. However, the recently updated corporate income tax return (form ITR14) also requires that information pertaining to CbC reporting be included. Thus, this methodology needs to be followed.
 

KPMG observation

Currently, the SARS website still provides for submitting a notification via email even though the updated form ITR14 provides for submission of the same details. Until clarity is obtained, it may be prudent to continue to submit CbC notifications by email despite the information also having to be provided in the form ITR14.

  • Taxpayers required to file a CbC report

The same deadline (within 12 months from the end of the relevant fiscal year) applies to South African resident taxpayers that are obligated to file their CbC report in South Africa. In addition, independent from the R100 million “potentially affected transactions” threshold, resident taxpayers required to file their CbC reports in South Africa also need to file Master file and Local file documentation with SARS.


KPMG observation

The 12-month time frame requirement also applies to resident taxpayers forming part of a multinational group with turnover in excess of R10 billion (or the equivalent amount of €750 million) and when a group entity files the CbC report in a country does not have a suitable agreement for the automatic exchange of CbC reports with South Africa).

  • Transfer pricing related disclosures in the ITR14 annual corporate tax return

The annual income tax return for corporates (form ITR14) includes a number of transfer pricing-related questions that need to be responded to by a taxpayer that has entered into cross-border related-party transactions. These questions serve for transfer pricing risk assessment purposes and therefore need to be considered thoroughly and answered correctly. The annual corporate income tax return must be submitted within 12 months from the end of the relevant year of assessment.


Penalties for non-compliance

Taxpayers not adhering to the official deadlines with regard to the submission or filing of transfer pricing documentation or transfer pricing related information may be subject to penalties. While SARS has not applied penalties in respect contravention with some of the existing deadlines, it is expected that all deadlines will be enforced more strictly going forward.

Read an April 2020 report [PDF 487 KB] prepared by the KPMG member firm in South Africa

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