• Service: Tax, Global Transfer Pricing Services, International Tax
  • Type: Regulatory update
  • Date: 10/30/2013

South Africa - Transfer-pricing relief for loans with equity-like features 

October 30:  South Africa’s Taxation Laws Amendment Bill, 2013 (proposed 24 October 2013, following the draft bill of 4 July 2013) would offer transfer pricing relief for loans with equity-like features—i.e., loans extended by a South African company to its non-resident subsidiary, provided certain requirements are met.

Generally, the transfer pricing provisions apply to any loan granted by a South African tax resident to a foreign related-party entity, regardless of the substantive character of the loan. However, South African companies often capitalise their offshore operations with loans that have equity-like characteristics—e.g., the loan bears very little or no yield and is deeply subordinated with long-term or indefinite maturity dates.

The bill proposes to extend transfer pricing relief to outbound loans that clearly resemble equity. It is intended that a debt owed by a foreign company to a South African company would not be subject to South African transfer pricing provisions provided that certain requirements are met:

  • The creditor must be a South African tax resident company.
  • The creditor (or any company that forms part of the same group of companies as the creditor) must hold at least 10% of the equity shares and voting rights directly or indirectly in the foreign company (i.e., the debtor).
  • The loan must be perpetual or be non-redeemable within a period of 30 years from the date the loan is incurred.
  • The full redemption of the loan is legally conditional upon the solvency of the foreign company.

A loan that meets these criteria, in substance, is exposed to the same economic risk as equity and thus poses little or no risk to the South African tax base if interest is under- charged and therefore would not be subject to the South African transfer pricing provisions.

The proposed amendment would apply in respect of years of assessment commencing on or after 1 April 2014.

Read an October 2013 report prepared by the KPMG member firm in South Africa: Extended Transfer Pricing Relief

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

©2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.

The KPMG logo and name are trademarks of KPMG International.

KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever.

The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

Direct comments, including requests for subscriptions, to
For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at:

+ 1 202 533 4366

1801 K Street NW
Washington, DC 20006.


Share this

Share this


Subscribe to receive the latest TaxNewsFlash email alerts (you must select the option for TaxNewsFlash)

Already a Subscriber? Login

Not a member? Subscribe now