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Attacks by the South African Revenue Service (SARS) on the transfer pricing practices of multinational enterprises (MNEs) are on the rise, leading to tax disputes with SARS over significant amounts of tax. ENSafrica, Taxand South Africa, provides an analysis.
MNEs operating in South Africa provide information to SARS in various forms such as annual Corporate Income Tax returns, Country-by-Country reports as well as the extensive Transfer Pricing documentation. It is therefore important to ensure that all information submitted to SARS in these various formats is aligned as any difference could assist SARS in challenging not only the Transfer Pricing policies but ultimately also the tax structure of the group as well as the substance of how a group operates across the globe.
While a Functional Analysis identifies the functions performed, the risks assumed and the assets utilsed by various members of an MNE, it has also become important to do a proper Value Chain Analysis (VCA) in order to identify the jurisdictions where the key functions are performed, where the real value is created and where the actual profit is.
Discover more: From functional analysis to value chain analysis
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A proper VCA will provide a much clearer picture as to whether the profits of an MNE are actually generated in those jurisdictions where the real value is added, critical information for preparing a response to any attack from SARS on the transfer pricing policies of the MNE.