• Service: Tax, Global Transfer Pricing Services, Global Mobility Services, International Tax
  • Type: Regulatory update
  • Date: 2/28/2014

South Africa - Transfer pricing, cross-border proposals in 2014 budget 

February 28:  The 2014 budget, presented in South Africa on 26 February 2014, contains certain proposals for changes to the transfer pricing rules and cross-border taxation.

Among the transfer pricing and cross-border tax provisions in the 2014 budget are the following measures:

  • Secondary adjustment for transfer pricing - It is proposed that the so-called “secondary adjustment” in the form of a deemed loan be removed. The transfer pricing law would be amended to deem the secondary adjustment to be a dividend or capital contribution, depending on the facts and circumstances, and no longer a loan. This would be similar to the previous treatment of transfer pricing adjustments.

  • Foreign dividends of controlled foreign companies (CFCs) owned by individuals - If a controlled foreign company, in which a resident individual holds shares, receives a taxable foreign dividend, the effective tax rate on the dividend is 21%. It is proposed that the ratio be changed to reflect the fact that an individual, not a company, is taxed with reference to the foreign dividend.

  • Tax exemption for CFCs - For a South African resident company that owns many foreign companies, it is cumbersome to establish whether the “high” foreign tax exemption applies if most of the income of the CFCs is attributable to a foreign business establishment. It is proposed that an option be provided to deem the net income of a CFC to be zero if either the high foreign tax or the foreign business establishment test, when applied to aggregate taxable amounts, is met.

Contact a tax professional with KPMG's Global Transfer Pricing Services.

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