The South African Revenue Service (SARS) places responsibility for declaring certain high-risk arrangements and transactions on corporate taxpayers. These are outlined in the Tax Administration Act (TAA), in sections 34 to 39, which deal with reportable arrangements.
In a nutshell, arrangements that have certain characteristics (outlined in Section 35(1) of the TAA) must be reported to SARS. These include arrangements like hybrid financial instruments, share buy-backs and foreign insurance policies, among others. However, arrangements are excluded where the aggregate tax benefit that may be derived by all participants is less than R5 million.
One category of reportable arrangements that deals specifically with cross-border transactions is the arrangement relating to inbound services, which was detailed in a SARS Notice and came into effect in February 2016.
Generally, SARS allows taxpayers roughly 45 days to submit reportable arrangement notification details. What’s important for multinational entities (MNEs) is to include controls in their processes to ensure they identify and report these arrangements timeously.
It’s important to consider potential reportable arrangements, particularly given a recent case between SARS and Bravura Equity Services.
SARS has homed in on certain transactions that it views as high-risk as it conducts an inquiry into the tax affairs of Bravura, in particular a reportable arrangement that SARS alleged was not reported on.
SARS seems to be focusing increasingly on enforcement investigations, and reportable arrangements are likely to come under scrutiny. As such, it’s important for taxpayers to ensure they are abreast of these arrangements and have made all the relevant submissions to SARS.
At Graphene Economics™, our approach is generally to work on a basis that in this new area of increased transparency, all potentially interested revenue authorities will gain access to considerable amount of information relating to transactions. It’s therefore important to proactively take this into account and to be able to defend against queries relating to substance, the nature of transactions and any perception of aggressive tax structuring.
If you’d like assistance with reportable arrangements, please get in touch.