Cape Town - Multinational corporations are required to manage their taxes in a transparent manner before the automatic exchange of information between tax authorities comes into effect in September.
BDP Tax Services’ Marcus Botha and Sumayyah Pahad said on Thursday Finance Minister Pravin Gordhan’s Budget speech last month reinforced the government’s commitment to address cross-border tax avoidance by multinational corporations.
The two said the automatic exchange of information would reduce cross-border revenue leakages, money laundering and harmful tax practices.
“The standard for Automatic Exchange of Information Agreements (AEOI) in tax matters or Common Reporting Standards (CRS) is a global model of automatic exchange of information under the Multilateral Competent Authority Convention to which South Africa is a signatory.
“In terms of the CRS, 32 tax authorities exchange information obtained from financial institutions and asset managers.”
Botha and Pahad said the CRS set out information to be exchanged, institutions required to report the different types of accounts and taxpayers covered, and common due diligence procedures to be followed.
They said the SA Revenue Service (Sars) and the National Treasury made massive strides with the Base Erosion and Profit Shifting (Beps) and that the Tax Administration Act was amended in 2015 to implement country-by-country (CbC) reporting with the revenue service adopting the regulation which came into effect in December.
Roxanna Nyiri, head of international tax and transfer pricing, and Jolani Proxenos, transfer pricing consultant at BDO South Africa, said the introduction of the measures would allow tax authorities to exchange CbC reports electronically.
They said this would assist authorities to obtain a complete understanding of the manner in which Multinational Enterprises (MNEs) structures operate.
“The CbC must be filed within 12 months from the last day of the Reporting Fiscal Year of the MNE group,” said Nyiri and Proxenos.
Sars said last month that it had committed to the automatic exchange of tax information with the revenue authorities of over 50 other jurisdictions under the Organisation for Economic Co-operation and Development CRS by September.
Sars commissioner Tom Moyane welcomed the development as a major breakthrough to stem illicit financial outflows.
Webber Wentzel tax experts Anne Bennett and Karen Miller, said: “A lot of focus was given to development in transfer pricing, rules regarding interest deductibility and the introduction of the new multilateral instrument or ‘super treaty’ designed by the OECD to work together with existing tax treaties to enable those treaties to be effectively updated in the short term with relevant BEPS amendments.
“On the transfer pricing side, Treasury announced its focus on strengthening transfer pricing compliance as a means to combat tax avoidance and illicit flows.”