The pre-Christmas announcement that the South African Revenue Service (SARS) fiiiiiiiiinally plans to implement an Advance Pricing Agreement (APA) Programme in South Africa (SA) has taxpayers and potential investors salivating. It’s been a long time coming as businesses operating in SA have been calling for APAs for a long time, and their pleas have been falling on deaf ears until now.  So great news for businesses to get certainty on cross-border pricing, but of course implementing a big new programme like this will take time and lots of womanpower. Is it really worth all the fuss, and is SARS up to the task? Read on!

OECD recommended administrative mechanisms against BEPS
In what is frequently referred to as the ‘post-BEPS world’, i.e. today’s environment of cracking down on any shifting of profits to low tax jurisdictions, Transfer Pricing (TP) is a hot topic, even gaining momentum in the political world. This has brought significant scrutiny into the tax affairs of multinational enterprises the world over and has resulted in unprecedented levels of cooperation amongst tax authorities to share information and better coordinate crackdowns.

What is an APA anyway? 
The OECD defines an APA as “an arrangement that determines, in advance of a controlled transaction, an appropriate set of criteria for determination of the transfer price for those transactions over a fixed period of time.”  Thus it is basically prior approval from the relevant tax authority that a business’ transfer pricing, i.e. the charges for goods and services between its cross-border connected parties, is correct.  Now as TP audits are generally the largest risk for multinationals, this brings huge benefits as it:

  • Proactively avoids disputes between a Revenue Authority and taxpayers; and
  • Creates greater tax certainty.

Put simply – APAs are upfront agreements with a tax authority/tax authorities on your TP arrangements and pricing policies. Imagine, an agreed-upon consistent TP result year on year – you can lose sleep over other matters instead!

So how will the SA APA system work?
While SARS openly admits it has insufficient TP capacity, it is currently planning and drafting the legislation for an APA system for approval by the National Treasury and the Minister of Finance. Using the learnings from the existing Advance Tax Ruling system as a basis, SARS intends to put enabling legislation in place to underpin the APA system as discussed in SARS’ paper released in December 2021, the “Proposed Model for Establishing an Advance Pricing Agreement Programme in South Africa and Release of Draft Legislation”. This provides a high-level model and draft legislative framework for the APA unit as well as the processes associated with it.

Although not yet finalised, SARS is clearly fairly advanced in developing the model and has a pilot project already in the planning stages. The APA pilot will only accept bilateral APAs and will take international learnings into consideration before branching out into multilateral and unilateral APAs.

The draft APA legislation (which is likely to take between 18 to 30 months to put in place) is envisaged to form part of Chapter 7 of the Tax Administration Act 28 of 2011.

So…. what say you?
Tax certainty and encouraging investment can only be good for the SA economy, so we are excited that APAs are finally here to level the playing field! If you want to know more about how APAs could form an important part of your international business strategy, please contact us.

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How can we help?

How you structure your business is a critical question as you expand globally.  The right structure will protect your assets, improve your currency position, support your business operations, facilitate future business expansion and changes, and optimise your overall tax rate. Trying to unscramble a sub-optimal structure entered into in haste or without full consideration of relevant facts is complex and expensive, so it’s important to plan upfront.

Structuring an international business is both a science and an art – this is our specialist area of expertise. Regan van Rooy is an international tax and structuring advisory firm focussing on Africa. We have offices in South Africa, Mauritius and Ireland and we can help you with any international tax or structuring query.

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