Country by Country Reporting and Transfer Pricing
23 Nov 2017
SARS issued a public notice on 20 October 2017 which stipulates the requirements and timeframes for Country-by-Country Reporting (“CbCr”) transfer pricing documentation (master file and local file).
The requirements for CbCr which apply for financial years commencing on or after 1 January 2016 is a consolidated Multi-National Entities (“MNE”) group turnover of at least R10 billion in the fiscal year prior to the year in which the CbC report must be submitted. Where an entity is liable for CbCr, it is also required to submit its master and local file for the purposes of transfer pricing.
A crucial item that may easily be overlooked is where the CbCr of a MNE is not filed in South Africa, the SA resident entity of that MNE multinational enterprise need to inform SARS of the identity of the Ultimate Parent Entity filing the CbCr within 12 months after the last day of the Reporting Fiscal Year of the MNE. That means where the Ultimate Parent Entity of the group has a 31 December year end, the notification will be due by 31 December 2017.
It must be noted that these requirements not only impact SA-resident parent companies, but also foreign-held SA-resident companies which may be required to submit CbCr in SA.
In terms of the CbCr regulations the report is due no later than 12 months after the last day of the Reporting Fiscal Year of the MNE Group. The first CbCr report will therefore be due on 31 December 2017 for entities with a financial year commencing 1 January.
Where an entity is below the R10 billion threshold but transacts cross border with connected persons and such transactions exceed or are reasonably expected to exceed R100 million that company is required to submit its master and local file. This applies for financial years commencing on or after 1 October 2016.
The term “group” for the purposes of CbC reporting is any collection of entities related through ownership or control such that it is required to prepare consolidated financial statements for financial reporting purposes or would be required if the equity interest of any of the entities were traded on a public securities exchange.
The CbC report will contain extensive information in respect of transactions between the group entities and is detailed on a country-by-country basis which includes:
- Profit/loss before income tax
- Income tax paid or accrued
- Stated capital and accumulated earnings
- Number of employees
- Tangible assets, other than cash or cash equivalents
. Transfer pricing policy documentation as required by SARS includes:
- A description of the entities ownership structure
- Detailed particulars (name, address, legal form and tax jurisdiction) of each connected persons with which potentially affected transactions have been entered into
- A summary of the entity’s business operation including the nature of its business, specific business and external market conditions, business strategy
- Details of senior management including organogram of title and location of persons
- Major economic and legal issues affecting the profitability of the entity and/or industry
- A description of any business restructuring or transfer of intangibles
- The entity’s market share within the industry and analysis of market competitor information
- Key value drivers
- Industry policy, incentives or restrictions
- The role of the entity and the connected person/s in the group’s supply chain
Where a specific transaction exceeds R5 million detailed records of such transaction must be maintained which includes:
- nature and terms of the transaction
- copies of the relevant contracts or agreements
- relevant SARB applications or approvals
- functional analysis
- operational flows such as information, product and cash flow
- comparable analysis
- comprehensive details of financial assistance
The submission of the CbC report, master and local file will be done via the entity’s SARS eFiling profile. The CbC report is unfortunately not yet available but SARS have indicated that these will be made available in the near future. The master and local files will need to be uploaded by way of PDF files.
The time frames and documentation submission requirements is summarised in the diagram below.