SOUTH AFRICA Law and Practice Contributed by: Magda Snyckers and Cameron Nathaniel, ENS
4.6 Local Transfer Pricing Rules and OECD Standards South Africa does not officially endorse the guidance on low value-adding intra-group services and the sim - plified approach thereto. 4.7 Transfer Pricing Disputes and Mutual Agreement Procedures South Africa’s record in resolving transfer pricing dis - putes through MAPS is poor. It appears that SARS is generally reluctant to enter into MAPS. 5. Taxation of Non-Local Corporations 5.1 Compensating Adjustments While compensating adjustments have been allowed in the past, there is a sense that SARS is increasingly reluctant to make such adjustments. 5.2 Local Branches and Local Subsidiaries Local branches of non-local corporations are taxed at the same corporate tax rate as local subsidiaries. However, foreign shareholders are subject to divi - dends tax or the local subsidiaries may be subject to dividends tax in respect of the distribution of divi - dends which constitute the distribution of an asset in specie. There is no branch profit tax. 5.3 Capital Gains of Non-Residents Non-residents are only subject to CGT if the shares in a local corporation (i) are effectively connected to a South African permanent establishment of the non- resident in South Africa; or (ii) constitute a right to or interest in immovable property. An interest in immov - able property includes equity shares in any company (resident or non-resident) where more than 80% of the value of the equity shares is attributable, directly or indirectly, to South African immovable property or rights to this, and more than 20% of the equity shares are held by the non-resident together with connected parties. Treaty relief may in some limited instances apply. 5.4 Tax Implications of Change of Control Degrouping provisions apply to certain of the intra- group rollover relief provisions. If the foreign company is a controlled foreign company (CFC) of a South Afri -
can resident, there may be tax implications if it ceases to be a CFC. 5.5 Formula-Based Income Attribution South Africa has incorporated the GloBE rules. 5.6 Deductibility of Intra-Group Management and Administrative Charges Generally, management and administrative expenses may only be deducted provided the requirements of the general deduction formula are met. The general deduction formula is contained in Section 11 (a) read with Section 23 (g) of the Act. In order to qualify for a deduction, the following requirements must be met by the taxpayer. The expenditure must: • actually have been incurred; • be laid out or expended for the purposes of trade; • be incurred in the production of income; and • not be of a capital nature. 5.7 Restraints on Related-Party Borrowing See 2.5 Deduction of Interest and 4.4 Transfer Pric- ing Issues for Inbound Investors . 6. Taxation of Foreign Income of Local Corporations 6.1 Foreign Income Exemptions Residents are taxed on their worldwide income. Any person who constitutes a “resident” is required to include in their “gross income” any amount which is received by or accrues to such person which is not of a capital nature (including foreign income). 6.2 Non-Deductible Local Expenses See 6.1 Foreign Income Exemptions . Expenditure incurred in the production of foreign dividend income is not allowed as a deduction. 6.3 Dividends From Foreign Subsidiaries A domestic participation exemption applies to foreign dividends (as defined) if the local company holds 10% or more of the equity shares and votes in the foreign subsidiary. However, the exemption does not apply if the income is deductible in South Africa and not sub -
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