In a recent case (Cassazione Civile, Sezioni Unite, Sentenza n. 26432/2024, October 10, 2024) involving an Italian manufacturing company, the Italian Supreme Court ruled that the OECD Transfer Pricing Guidelines (“OECD Guidelines”) serve as technical tools rather than legal sources, aiding in the application of transfer pricing laws.
The case centered on an Italian company that was assessed for its approach to determining the value of its intra-group transactions. The company preferred the comparable uncontrolled price method, while the tax authorities used the transactional net margin method. Both lower courts dismissed the company’s appeal, and the Supreme Court upheld this decision, noting that the transactional net margin method was suitable due to the low-risk nature of the transactions. The court highlighted that it is the responsibility of the taxpayer and tax authorities to select the most appropriate method, without strictly adhering to the OECD Guidelines’ recommended hierarchy.
The ruling by the Italian Supreme Court has raised important questions about the status of the OECD Guidelines and their application by tax authorities. By asserting that the OECD Guidelines are not legally binding but rather technical tools to support existing legislation, the court has broadened the interpretation of how the OECD Guidelines can be adopted in practice.
The ruling may influence tax authorities in other jurisdictions, prompting them to reconsider how they rely on the OECD Guidelines. If the OECD guidelines are viewed primarily as non-binding recommendationsn rather than strict rules, tax authorities might adopt a more flexible approach to their application.
This may result in greater flexibility in choosing methods for determining transfer pricing and valuing intra-group transactions.
In South Africa, the OECD Guidelines are followed in the absence of specific guidance from local regulations, or the tax treaties. While the OECD Guidelines provides a valuable framework, the ruling emphasizes that adherence to these guidelines is not mandatory, and that local regulations and practices must also be taken into account.
Considering this development, it is possible that other tax authorities, including SARS, might follow suit and allow greater flexibility in the application of the principles outlined in the OECD Guidelines. This could result in a more tailored approach to transfer pricing, where methods are chosen based on the specific circumstances of each case rather than strictly adhering to the methods recommended in the OECD Guidelines.
Ultimately, the Italian Supreme Court’s ruling has the potential to transform how tax authorities worldwide, including those in South Africa, interact with the OECD Guidelines. As global tax standards develop, this decision highlights the importance of reconciling international guidance with local legislative frameworks.
Effective from 1 September 2024, the South African government introduced the “two-pots” retirement system into the retirement savings regime. With this system, retirement savings are split into three components: a “vested component,” a “savings component,” and a “retirement component.”
A vested component is made up of retirement savings as of 31 August 2024. From the 1st of September 2024, the retirement contributions are split into two components, one-third of the contributions goes to the “savings component” and two-thirds goes to the “retirement component”. From this date, members can withdraw funds allocated to the “savings component” once every tax year should they need to, for example, in the case of financial distress or emergency. The minimum withdrawal amount is R2 000 and is taxed at marginal income tax rates.
South Africa is party to numerous Double Taxation Agreements (DTA), which are designed to prevent double taxation by ensuring that specific income is taxed only once. As a result, you may qualify for tax relief in South Africa, meaning that your two-pots savings withdrawal benefit income would be taxed solely in your country of residence.
You can apply for a directive for the relief of the withholding of Employees’ Tax from your two-pots savings withdrawal benefit by completing the RST01 application form. The RST01 application process was initially designed by SARS to formalise claiming relief in terms of a DTA in respect of pensions and annuities, and now it also applies to two-pots savings withdrawals. This form is currently used as an interim measure to allow non-resident fund members to apply for the relief from South African tax on the two-pots savings withdrawal benefit income, effective from 1 September 2024.
It is essential to point out that the requests on the RST01 application form should be in terms of the existing DTA between South Africa and your country of residence. The tax office in the country of your residence must certify on the RST01 application form that you are a resident of that country in terms of the DTA between South Africa and your country of residence. You will also be required to provide a tax residency certificate from the tax office in the country of your residence.
The tax directive for the two-pots savings withdrawal benefits is valid until the end of the tax year in which the withdrawal takes place and must be applied for every year of withdrawal from Savings Component.
For more information you can contact us on: tax.info@sng.gt.com
On 11 December 2023, the South African Revenue Service (SARS) issued communication indicating that estimated assessment functionality for VAT which may be issued in terms of section 95(1)(c) of the Tax Administration Act (TAA) has been implemented.
An estimated assessment is an assessment that SARS may raise when a vendor fails to submit the supporting documentation requested by SARS within the required timeframe in respect of the tax period which has been selected for verification.
SARS previously issued standard system generated requests, i.e. the so-called “Verification of Value-Added Tax Declaration VAT 201” letters, to vendors in which certain information would be requested for the tax period selected. With the announcement made by SARS on 11 December 2023, we have observed that SARS requests comprehensive information which extends beyond the declarations made in the particular tax period under verification. Such information may require extensive time and involvement to compile and submit to SARS. If a vendor fails to submit the relevant information to SARS within the stipulated timeframe, SARS may raise an estimated VAT assessment including penalties and interest.
It should be noted that a request for correction will not be permissible where SARS has raised an estimated assessment for the same tax period. However, in terms of section 95(6) of the TAA, a vendor may, within 40 business days from the date of assessment, or a longer period as the Commissioner may prescribe by public notice, request SARS to make a reduced or additional assessment by submitting a true and full return or the relevant material. A vendor is allowed to submit a request for extension should they not be able to submit the required documentation within 40 business days provided that reasonable grounds exist.
It should be noted that an estimated assessment is not subject to an objection or an appeal until a final outcome is issued by SARS after the submission of the supporting documents by the vendor.
Where an estimated assessment results in the taxpayer being in a tax payable position, the taxpayer is allowed to submit a request for suspension of payment.
We therefore encourage vendors to take note of this announcement and ensure that SARS is provided with all the required information or documentation within the stipulated timeframes to avoid any delays in payment of refunds and/or unnecessary assessments being issued.
