SARS releases proposed model for Advance Pricing Agreement Programme

The South African Revenue Service (SARS) published, on 10 December, a high-level model and draft legislative framework for an Advance Pricing Agreement (APA) unit and associated processes at SARS and the introduction of an APA programme in South Africa.

The OECD defines an APA as: “An arrangement that determines, in advance of a controlled transaction, an appropriate set of criteria for determination of the transfer price for those transactions over a fixed period of time.”

The establishment of an APA programme has been a key aspect of SARS’s strategic objective of providing clarity and certainty for taxpayers of their obligations, in keeping with international developments and the recommendations of the Davis Tax Committee. The main impediment was the scarcity of transfer pricing expertise and it would require resources and time to develop and expand capacity in the existing transfer pricing unit.

According to SARS’s proposed model, the process flow through the various stages would be as follows:

  1. APA Pre-application (entry point for all new applications – outbound and inbound): includes a request for an APA pre-application consultation; payment of the pre-application consultation fee; initial screening; pre-application consultation; initial indication of quantum of cost recovery fees; and the decision by SARS as to whether or not an APA application can be made.
  2. APA Application (entry point for extensions, amendments and re-negotiations): includes the submission of the formal APA application; payment of the application fee; and initial screening of the APA application to determine the completeness and acceptability of the application.
  3. APA Processing: includes allocation of the case to an APA team; comprehensive examination and analysis of the application; engagement with the applicant (as required) on any relevant aspect (including fees); regular progress reports and fee invoices; establishing and approval of the SARS position and parameters for negotiation with foreign tax authority; and drafting of a preliminary APA.
  4. APA Negotiations: includes negotiations with the foreign tax authority to reach agreement in respect of the preliminary APAs (including amendments where required); sending the preliminary APA and invoices to the applicant; allowing input by the applicant in respect of the agreed preliminary APA (including allowing amendments where in scope); and the decision by applicant whether or not to proceed to signature.
  5. APA Finalisation: includes payment of any outstanding fees based on invoices (whether proceeding or not); signature by applicant of the final preliminary APA; signature by SARS of the preliminary APA; signature by the foreign tax authority of the preliminary APA; and dissemination of signed APA agreement to all relevant parties.
  6. APA Implementation and Monitoring: APA holder implements APA and submits an APA compliance report after the end of each period; APA unit conducts a compliance review and, if necessary, audit after receipt of the compliance report; APA holder to correct any non-compliance; APA unit to initiate amendment / termination procedures (whichever is relevant) in case of continued non-compliance or fraud / misrepresentation.
  7. APA Termination / Amendment / Extension: includes the APA amendment and re-negotiation process (necessitated by changes in law, or initiated by APA holder when there is a change in circumstances); the APA termination process (necessitated by fraud, misrepresentation, non-compliance, unwillingness by APA holder to amend APA when law changes, or the APA reaches the end of its term); and the APA extension process (initiated by the APA holder) with the necessary fees based on invoices.

SARS said it hoped that the feedback received in respect of the proposed model would enable it to be further streamlined. Various aspects relating to the mechanics, processes, timeframes, eligibility criteria and scope of APAs will be subject to promulgation in the Gazette, including:

  • Any other relevant factors to be considered in determining the most appropriate transfer pricing method;
  • The parameters within which SARS may enter into an APA with an applicant;
  • Which persons are eligible to apply to SARS for an APA;
  • The quantum of the relevant fees – APA pre-application consultation fee, application fee, cost recovery fees, maintenance or extension fees;
  • The minimum value of affected transactions in order to qualify for the APA process;
  • Procedures and guidelines for the implementation and operation of the APA process.

To further develop and refine the model, a pilot APA project is to open as soon as possible after the legislative framework has been put in place. This pilot will only accept bilateral APA applications and is intended to enable the SARS APA unit to learn from other jurisdictions and expand capacity in the APA space before SARS introduces the full APA programme or expands the programme to include multilateral APA applications.


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