South Africa: CBC reporting in South Africa – new guidelines and practical challenges

February 27 2018

Multinational companies operating in South Africa are grappling with the practical challenges of the BEPS transfer pricing-related filing requirements.

South Africa is not an OECD member country, but as a member of the G20 has signed up to the minimum standards requirements under the OECD BEPS project. On September 29 2017, the South African Revenue Service (SARS) issued its final external business requirements specifications (BRS) on transfer pricing documentation following closely the OECD recommendations contained in BEPS Action 13. This much anticipated guide is intended to provide taxpayers with guidance on the level of documentation that should be prepared and the manner in which it must be submitted to the SARS.

Parent companies tax resident in South Africa will be required to prepare and lodge a master file which will likely be exchanged with other tax jurisdictions under the automatic exchange of information agreements (AEOI) or through an exchange of information request (EOIR). Action 13 also advocates the need for a more detailed local file to be completed for each jurisdiction in which the multinational has operations.

The above files will be submitted to the SARS in terms of section 25 of the Tax Administration Act (TAA). This provision already requires parent companies to complete and lodge the country-by-country report (CbCR) in respect of their global operations. Section 25 of the TAA governs the submission of tax returns and accompanying documentation.

The SARS has stated that the transactional threshold is lower for the master file and local file than for the CbCR. A multinational headquartered in South Africa only needs to lodge a CbCR where its consolidated group revenue exceeds ZAR 10 billion ($860.5 million). A master file and local file will have to be completed and lodged where the aggregate of the related party transactions exceeds ZAR 100 million. This aligns with the general documentation retention rules for transfer pricing contained in section 29 of the TAA.

Multinationals are struggling to meet these submission requirements, largely due to the late issuance of the BRS. As a result, the SARS has agreed to extend the deadline to February 28 2018 for the submission of the CbCR and master file for companies with a December year-end. Although the SARS has also issued a detailed guide on how to complete and submit the required documents, many multinationals headquartered in South Africa are facing practical challenges around submission of the reports. As an example, the files need to be filed through the SARS e-filing portal. The SARS imposes limitations on the size of documents that can be uploaded, which poses a practical problem. In addition, companies are not able to upload a completed CbCR as a standalone document but need to input the data into an online template which makes the process administratively cumbersome and prone to error. These and other administrative issues have been highlighted to the SARS. As South Africa adopts this international standard in line with the OECD member countries, it is hoped that the SARS technology will be adapted to support and not impede the required processes.