24 February 2016 by Cliffe Dekker Hofmeyr Special Edition Tax and Exchange Control Alert

BEPS front and centre

The Minister endorsed the work of the Davis Committee and reiterated South Africa’s commitment to the work of the Organisation for Economic Cooperation and Development (OECD) and G20 on base erosion and profit shifting (BEPS). He announced that South Africa would continue to measure its tax system against internationally accepted tax trends, principles and practices, and keep pace with international initiatives to improve tax compliance and deal with problems of base erosion.

In particular, he warned that aggressive action would be taken against taxpayers attempting tax evasion through transfer pricing and tax treaty abuses. In addition, he advised that further measures would be introduced to counter the exploitation of hybrid debt instruments in alignment with Action 2 (Neutralisation of the effects of hybrid mismatches) of the OECD BEPS Action Plan.

South Africa has been a staunch supporter of the OECD in its endeavours to prevent profit shifting between jurisdictions by multinational enterprises (MNEs) attempting to evade tax in their primary jurisdictions of operation and National Treasury has already introduced domestic provisions to address base erosion and profit shifting practices that it considers prejudicial to the South African fiscus. Primary areas of concern that have been identified by SARS are hybrid debt, connected person debt, transfer pricing and acquisition debt.

2017 will see the implementation of international agreements on information sharing between tax administrations. It is envisaged that these agreements will enable tax authorities to more effectively attack illicit flows and abusive practices by MNEs and wealthy individuals. The Minister noted that SARS’s Large Business Centre was well placed to take advantage of the imminent information sharing initiatives.

Finally in this regard, the Minister tossed a bone to taxpayers who still have undisclosed assets offshore by giving advanced notice of a special voluntary disclosure programme that will provide additional relief for a six month period commencing in October 2016. Affected taxpayers are encouraged to employ the programme to regularise their tax affairs.

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