The introduction of an advance pricing settlement (APA) programme in South Africa for cross-border transactions, is broadly thought of a “giant step” in the fitting course, though there are some reservations about key elements of the programme.
Transfer pricing disputes have been on the rise, leading to massive further assessments the place tax authorities have questioned the transfer pricing methodology utilized in worldwide transactions.
Read: South Africa will get its first transfer pricing information
Multinational firms coming into massive cross-border transactions choose to have an APA in place for big transactions so as to keep away from disputes, audits, further assessments and even double taxation.
Tax certainty
The fundamental goals of an APA programme are to guarantee transparency, to create tax certainty, and to keep away from or get rid of pricey and time-consuming transfer pricing audits and tax disputes.
Corneli Espost, director at PwC, says tax certainty stays a key consideration for firms after they put money into a selected nation.
A rustic with an APA programme offers assurance to the investor that their tax affairs will probably be handled effectively and by well-trained professionals.
There has been some reluctance on the a part of the South African Revenue Service (Sars) to introduce an APA programme. However, on the finish of 2020 it did launch an APA dialogue paper.
Towards the tip of final yr, it revealed a proposed mannequin and draft laws for implementation, says April Nicholson, affiliate director at Graphene Economics.
The implementation date is but to be confirmed.
Read: The rising considerations round cross-border transfer pricing in Africa
During a panel dialogue at a South African Institute of Taxation transfer pricing summit, Nicholson stated the Organisation for Economic Cooperation and Development (OECD) launched its handbook on bilateral advance pricing agreements in September.
“It is intended to give guidance to tax authorities and taxpayers to streamline their bilateral APAs to increase transparency and collaboration.”
The OECD’s in-depth investigation into the efficacy of bilateral APAs resulted within the handbook with 29 greatest practices, says Philip Fouche, affiliate director at Deloitte. “This is a great opportunity for Sars to link in with international best practice.”
Pilot part
South Africa will begin with a pilot programme that can concentrate on bilateral APAs (negotiations between Sars and one overseas tax authority), earlier than rolling out the programme to cowl unilateral (between the taxpayer and tax authority) and multilateral (between greater than two tax authorities) agreements.
The course of entails a pre-application session which takes place inside 60 days of Sars receiving a request for an APA.
Sars should notify the taxpayer inside 90 days whether or not they can proceed to lodge an APA. The APA have to be lodged inside 60 days. Time is allowed for a revision or withdrawal of the settlement.
Once there’s an settlement the applicant can settle for, reject or counsel (apparently restricted) modifications.
This have to be finished inside 60 days after receiving the settlement. Once it’s signed by all of the events it turns into efficient and is usually legitimate for 5 years.
Espost is anxious in regards to the tight timelines for taxpayers to collect the required data to full their functions. Sars can reject an utility if, in its view, it doesn’t meet the prescribed necessities.
Read:
Lack of sources
A serious problem for profitable implementation is the present lack of sources to cope with an APA programme on a bigger scale.
Sars doesn’t have sufficient individuals with transfer pricing experience.
Espost believes the challenges could be overcome by limiting the variety of instances allowed into the programme and to guarantee instances which are advanced in nature and would, with out an APA, lead to an audit and even find yourself in a mutual settlement process (the process that permits tax authorities to resolve worldwide tax disputes) are included.
There are deserves in having APAs, says Kananelo Lethena, senior transfer pricing supervisor at Deloitte. However, he isn’t overly excited.
“I think I will only get excited if the starting point was unilateral APAs. Once you start talking bilateral APAs I am less confident that it will happen any time soon,” says Lethena.
Carryn Alexander, tax accomplice at Webber Wentzel, says different African nations have already adopted enabling laws for APAs, however implementation appears to be the issue.
In South Africa it might take three to 4 years earlier than our programme is in place.
She attributes implementation challenges to the shortage of bargaining energy of African nations in contrast with developed nations, in addition to the shortage of applicable abilities and experience. “I just think we should get going and do it.”
She additionally has some reservations about APAs as a lot as she believes they would scale back and even get rid of regulatory uncertainty for taxpayers and the tax authority.
