South Africa report considers how to react to OECD/G20 BEPS work

South Africa’s minister of finance on December 23 released for public comment a draft report that provides a detailed analysis of how South Africa should react to OECD/G-20 base erosion and profit shifting (BEPS) plan output.

The report, prepared by tax experts appointed by the minister of finance, addresses issues associated with the digital economy, harmful tax practices, treaty abuse, transfer pricing, and the proposed multilateral instrument that would implement the OECD/G20 BEPS recommendations. The draft was first presented to Minister of Finance Nhlanhla Musa Nene on June 30.

The draft recommends that South Africa adopt new source rules to tax nonresident suppliers of goods and services via e-commerce based on where the consumption takes place. Also, new rules should be adopted that require non-resident companies with South Africa sourced income to submit income tax returns even if they do not have a permanent establishment in South Africa, the report recommends.

The report suggests that South Africa renegotiate its tax treaties to include both a limitation on benefits provision and a principle purpose test to prevent treaty shopping.

The report also suggests that South Africa simplify existing rules on hybrid equity, and it criticizes a recently issued draft public notice listing some hybrid equity and debt instruments as reportable arrangements.

Comments on the draft are due March 31, 2015.

See:

• The Introductory Report

• Action 1 – Digital Economy

• Action 2 – Hybrid Mismatches

• Action 5 – Harmful Tax Practices

• Action 6 – Treaty Abuse

• Action 8 – Transfer Pricing of Intangibles

• Action 13 – Transfer Pricing Documentation

• Action 15 – Mutilateral Instrument

• Summary of Recommendations on the OECD September 2014 Deliverables

• 23 December 2014 – Media Statement – Release of First Interim Report on BEPS for public comment.