|ENSafrica, Taxand South Africa|
|Cliffe Dekker Hofmeyr|
South Africa has been a frontrunner in implementing BEPS recommendations into the national tax system. This includes legislation on hybrid instruments and transfer pricing. The South African government has made these changes regardless of the fact that the country is not a member of the OECD.
"The continued focus on base erosion is having a massive impact on tax policy in South Africa," said Brian Dennehy, a partner at Webber Wentzel. "We see it coming through reforms around M&A deals and transfer pricing, intermediary firms in certain regions and we've now got the MLI as an override to double tax treaties."
The South African Revenue Service (SARS) has responded to the changes by enhancing its TP unit as it adopts a more aggressive strategy. As a result, there has been a general increase in the number of TP disputes. Although this may just be the early phase of a crackdown. "We're going to find out in time what the true impact will be," said Dennehy.
At the same time, the country is facing political and economic turbulence. South Africa has seen its credit rating downgraded to junk by two ratings agencies in 2017. The economy is lagging in growth, and unemployment remains above 25%, while President Zuma's administration has been wracked by a slew of scandals.
This is partly due to the sacking of finance ministers Nhlanhla Nene and Pravin Gordhan, which caused a panic on the stock market and hit the value of the rand hard. These decisions have been matched by a shift in rhetoric on economic matters, including tax policy, which has implications for transfer pricing.
"We've seen fairly dramatic jumps in policy around redistribution, wealth taxes and land taxes," said Bernard du Plessis, partner at ENSafrica. "I think those taxes are politically expedient, but they won't yield the amounts needed to plug the deficit. Transfer pricing is increasing steadily and we expect that work to continue to grow. It's going to be a fairly volatile time for the next couple of years."
As the South African elections approach in 2019, the Zuma years look set to end on a down note. Deputy President Cyril Ramaphosa and Nkosazana Dlamini-Zuma have launched their respective campaigns for the leadership of the ruling party. The African National Congress will appoint a new leader in December 2017. Some practitioners believe this may lessen the incentive to make big changes for the time being.
"Both economically and politically, it is an interesting time in South Africa," said AJ Jansen van Nieuwenhuizen, the head of transfer pricing at Grant Thornton. "Over the next few years, the country will hold various local and national elections which could result in leadership that may or may not suport business growth. Within the transfer pricing sphere, we are expecting the imminent finalisation of transfer pricing documentation submissions requirements, which will further solidify South Africa's application and enforcement of the various OECD BEPS initiatives. Now, more than ever, taxpayers will need to ensure their transfer pricing affairs are in order."
South African Revenue Service
Visiting address: Lehae La Sars, 299 Bronkhorst Street, Nieuw Muckleneuk, 0181 Pretoria
Postal address: Private Bag X923, Pretoria 0001
Tel: +27 12 422 4000
(As of July 2017)
|Corporate income tax||28% (a)|
|Capital gains tax rate||18.648%|
|Branch tax rates||28% (a)|
|Royalties from patents, know-how, etc||15% (d)|
|Branch remittance tax||n.a.|
Net operating losses (years)
Source: EY 2016 Worldwide Corporate Tax Guide