South Africa’s Revenue Service releases updated guidance on seeking mutual agreement procedure assistance

South Africa’s Revenue ServiceTax authorities are fundamental institutions within government frameworks, overseeing tax assessment, collection, and administration. Their operations ensure that tax laws are enforced and public funds are collected efficiently. This article delves into tax authorities' purpose, responsibilities, and structure, offering insights into their essential role in supporting government functions and economic stability. What is a Tax Authority? A tax authority is... (SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently...) has issued an updated guide on Mutual Agreement Procedures (Issue 2) for taxpayers. The Guide contains general information on the background to the mutual agreement procedure (MAP), the use of MAP in general, and specific guidance relevant for cases related to transfer pricingTransfer pricing is a fundamental concept in international taxation that defines the pricing methods and rules applied to transactions between related entities within a multinational enterprise (MNE). In the context of tax regulations, it governs how prices for goods, services, or intangibles (such as intellectual property) are set when these items are exchanged between different branches, subsidiaries, or affiliates of....

This note summarizes the information contained in the guide, which includes:

• circumstances where MAP is available
• submitting a MAP request
• concluding a MAP request
• MAP and interaction with domestic law

Circumstances where MAP is available

The Guide provides information on instances where MAP is available to taxpayers, which could include instances where taxation is not in accordance with a tax treatyA Double Taxation Agreement (DTA), also known as a Double Taxation Treaty (or a Tax Treaty), is an international tax treaty between two or more countries that aims to prevent individuals or businesses from being taxed twice on the same income. With globalisation and the increase in cross-border economic activities, DTAs have become essential tools for promoting trade, investment, and... and where there are difficulties or doubts arising about the interpretation or application of a tax treatyA Double Taxation Agreement (DTA), also known as a Double Taxation Treaty (or a Tax Treaty), is an international tax treaty between two or more countries that aims to prevent individuals or businesses from being taxed twice on the same income. With globalisation and the increase in cross-border economic activities, DTAs have become essential tools for promoting trade, investment, and....

Taxation not in accordance with a tax treatyA Double Taxation Agreement (DTA), also known as a Double Taxation Treaty (or a Tax Treaty), is an international tax treaty between two or more countries that aims to prevent individuals or businesses from being taxed twice on the same income. With globalisation and the increase in cross-border economic activities, DTAs have become essential tools for promoting trade, investment, and...

Tax treaties concluded between South Africa and other jurisdictions generally contain Article 25 on MAP based on the OECDThe Organisation for Economic Co-operation and Development (OECD) is an international organisation comprising 38 member countries, established to foster economic growth, trade, and development on a global scale. Founded in 1961, the OECD provides a forum for governments to collaborate, share policy experiences, and develop solutions to common economic challenges. The OECD's core mission is to promote policies that improve... Model Tax Convention on Income and on Capital. Article 25(1) and (2) of the Model Convention provide for the elimination in a particular case of taxation that is not in accordance with a tax treatyA Double Taxation Agreement (DTA), also known as a Double Taxation Treaty (or a Tax Treaty), is an international tax treaty between two or more countries that aims to prevent individuals or businesses from being taxed twice on the same income. With globalisation and the increase in cross-border economic activities, DTAs have become essential tools for promoting trade, investment, and..., including:

• cases where a lack of information as to the taxpayer’s actual situation has led to the misapplication of a tax treatyA Double Taxation Agreement (DTA), also known as a Double Taxation Treaty (or a Tax Treaty), is an international tax treaty between two or more countries that aims to prevent individuals or businesses from being taxed twice on the same income. With globalisation and the increase in cross-border economic activities, DTAs have become essential tools for promoting trade, investment, and..., especially regarding the determination of residency (Article 4)
• the existence of a permanent establishment (Article 5)
• pensions and annuities (Article 17) and
• the temporary nature of the services performed by an employee (Article 15).

According to the Guide, taxpayers may request MAP assistance in these instances of taxation that are contrary to a tax treatyA Double Taxation Agreement (DTA), also known as a Double Taxation Treaty (or a Tax Treaty), is an international tax treaty between two or more countries that aims to prevent individuals or businesses from being taxed twice on the same income. With globalisation and the increase in cross-border economic activities, DTAs have become essential tools for promoting trade, investment, and..., which in most cases involve juridical double taxationDouble Taxation occurs when the same income or financial transaction is taxed twice, typically in different jurisdictions. It can arise in two primary contexts: economic double taxation, where the same income is taxed twice in the hands of different taxpayers, and juridical double taxation, where the same taxpayer is taxed on the same income in more than one country. Double....

Difficulties or doubts arising as to the interpretation or application of a tax treatyA Double Taxation Agreement (DTA), also known as a Double Taxation Treaty (or a Tax Treaty), is an international tax treaty between two or more countries that aims to prevent individuals or businesses from being taxed twice on the same income. With globalisation and the increase in cross-border economic activities, DTAs have become essential tools for promoting trade, investment, and...

The Guide provides that SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently... and the equivalent foreign competent authority (together, the Competent Authorities) will endeavour to resolve by mutual agreement “any difficulties or doubts arising as to the interpretation or application [of the relevant tax treaty]”. According to the Guide, the Competent Authorities can, in particular:

where a term has been incompletely or ambiguously defined in a tax treatyA Double Taxation Agreement (DTA), also known as a Double Taxation Treaty (or a Tax Treaty), is an international tax treaty between two or more countries that aims to prevent individuals or businesses from being taxed twice on the same income. With globalisation and the increase in cross-border economic activities, DTAs have become essential tools for promoting trade, investment, and..., complete or clarify its definition

where the laws of a jurisdiction have been changed without impairing the balance or affecting the substance of a tax treatyA Double Taxation Agreement (DTA), also known as a Double Taxation Treaty (or a Tax Treaty), is an international tax treaty between two or more countries that aims to prevent individuals or businesses from being taxed twice on the same income. With globalisation and the increase in cross-border economic activities, DTAs have become essential tools for promoting trade, investment, and..., settle any difficulties that may emerge from the new system of taxation arising out of such changes and

determine whether, and, if so, under what conditions, interest may be treated as dividends under the thin capitalisation rules in the jurisdiction of the borrower and give rise to relief for double taxationDouble Taxation occurs when the same income or financial transaction is taxed twice, typically in different jurisdictions. It can arise in two primary contexts: economic double taxation, where the same income is taxed twice in the hands of different taxpayers, and juridical double taxation, where the same taxpayer is taxed on the same income in more than one country. Double... in the jurisdiction of residence of the lender in the same way as for dividends.

Submitting a MAP request

According to the Guide, taxpayers must submit, at a minimum, the following information to SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently... to request MAP:

• taxpayer details
• the basis for the request
• facts of the case
• analysis of the issue(s) requested to be resolved via MAP
• a statement indicating whether the taxpayer has submitted the MAP request to the other jurisdiction(s)
• a statement confirming that all information and documentation provided in the MAP request is accurate and that the taxpayer will assist the Competent Authorities in their endeavours to resolve the MAP request by furnishing any other information or documentation required in a timely manner.

For cases involving withholding tax, the full names and surname, physical address, contact details, the taxpayer reference number (if known) and all receipts of tax withheld of the person who withheld the tax will also be required.

For cases involving transfer pricingTransfer pricing is a fundamental concept in international taxation that defines the pricing methods and rules applied to transactions between related entities within a multinational enterprise (MNE). In the context of tax regulations, it governs how prices for goods, services, or intangibles (such as intellectual property) are set when these items are exchanged between different branches, subsidiaries, or affiliates of..., the following additional information will be required:

• details regarding the adjustment (or proposed adjustment)
• calculations setting out the adjustment or proposed adjustment translated in both currencies
• a statement describing whether any previous or subsequent years are to be audited where there is a prospect of similar issues arising
• an indication of any specific issues raised by the foreign competent authority
• statements indicating whether the taxpayer has filed a refund claim, or entered into a settlement agreement, in either of the jurisdictions related to the relief sought
• the company name, physical address, contact details and tax or other identification number of any related foreign taxpayer involved

According to the Guide, the SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently... may consider MAP requests for multiple tax years and recurring issues, where such requests are made within the time period provided for in the tax treatyA Double Taxation Agreement (DTA), also known as a Double Taxation Treaty (or a Tax Treaty), is an international tax treaty between two or more countries that aims to prevent individuals or businesses from being taxed twice on the same income. With globalisation and the increase in cross-border economic activities, DTAs have become essential tools for promoting trade, investment, and..., and the relevant facts and circumstances are the same.

A taxpayer should submit the MAP request to the competent authority where it is a tax resident, or to the competent authorities of both contracting jurisdictions.

Concluding a MAP request

The time taken to resolve a MAP case may vary according to its complexity. The Guide provides that the competent authorities will endeavour to reach resolution on MAP cases within an average timeframe of 24 months.

SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently... will notify the taxpayer: if a MAP request is rejected (providing a basis for such a decision); to update the taxpayer on the status of the MAP (to the extent that the update does not hinder the MAP process); upon conclusion of a MAP case, providing the details of the decision or agreement; upon implementation to provide the process to follow after an agreement is reached to provide relief (if applicable).

According to the Guide, where it is determined in a transfer pricingTransfer pricing is a fundamental concept in international taxation that defines the pricing methods and rules applied to transactions between related entities within a multinational enterprise (MNE). In the context of tax regulations, it governs how prices for goods, services, or intangibles (such as intellectual property) are set when these items are exchanged between different branches, subsidiaries, or affiliates of... MAP case that an agreement will be reached between the competent authorities, the taxpayer will be informed by SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently... of the contents of the proposed agreement or decision and provide a reasonable time to confirm acceptance of the proposal. A taxpayer who is not satisfied with the proposed agreement or decision may respond to the competent authorities in writing. The competent authorities may then either vary the proposed agreement or close the MAP case without an outcome that is satisfactory to the taxpayer.

Where a primary transfer pricingTransfer pricing is a fundamental concept in international taxation that defines the pricing methods and rules applied to transactions between related entities within a multinational enterprise (MNE). In the context of tax regulations, it governs how prices for goods, services, or intangibles (such as intellectual property) are set when these items are exchanged between different branches, subsidiaries, or affiliates of... or profit reallocation adjustment is made by a contracting jurisdiction, SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently... will seek to resolve the case by reaching a mutual understanding as to:

• the principles in the tax treatyA Double Taxation Agreement (DTA), also known as a Double Taxation Treaty (or a Tax Treaty), is an international tax treaty between two or more countries that aims to prevent individuals or businesses from being taxed twice on the same income. With globalisation and the increase in cross-border economic activities, DTAs have become essential tools for promoting trade, investment, and...
• the facts of the particular case
• how those principles should be applied to the facts of the case in a way that does not result in unrelieved double taxationDouble Taxation occurs when the same income or financial transaction is taxed twice, typically in different jurisdictions. It can arise in two primary contexts: economic double taxation, where the same income is taxed twice in the hands of different taxpayers, and juridical double taxation, where the same taxpayer is taxed on the same income in more than one country. Double...

The guide further provides that relief from secondary adjustments may be the outcome of a MAP settlement.

MAP and interaction with domestic law

The obligation to pay tax, and the right of SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently... to receive and recover tax, will not be suspended by an objection or appeal or pending the decision of a court of law pursuant to an appeal, unless a senior SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently... official suspends payment of the disputed tax. According to the Guide, taxpayers should thus lodge an objection or appeal concurrently with the MAP process.

Key takeaways

As with other guides issued by SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently..., the Guide is not considered an “official publication” or “general ruling” and accordingly does not create a practice generally prevailing under the relevant legislation. However, the publishing of this supplementary guidance shows a willingness on the part of South Africa to comply with the obligations arising from Action 14 of the OECD’s Base Erosion and Profit ShiftingBEPS stands for "Base Erosion and Profit Shifting". BEPS refers to tax avoidance strategies used by multinational enterprises (MNEs) to exploit gaps and mismatches in the international tax system. By shifting profits from high-tax jurisdictions to low- or no-tax locations, MNEs reduce their overall tax burden, even if little to no economic activity occurs in the low-tax jurisdictions. These practices erode... (BEPSBEPS stands for "Base Erosion and Profit Shifting". BEPS refers to tax avoidance strategies used by multinational enterprises (MNEs) to exploit gaps and mismatches in the international tax system. By shifting profits from high-tax jurisdictions to low- or no-tax locations, MNEs reduce their overall tax burden, even if little to no economic activity occurs in the low-tax jurisdictions. These practices erode...) Action Plan, as well as a readiness to engage with taxpayers and tax treatyA Double Taxation Agreement (DTA), also known as a Double Taxation Treaty (or a Tax Treaty), is an international tax treaty between two or more countries that aims to prevent individuals or businesses from being taxed twice on the same income. With globalisation and the increase in cross-border economic activities, DTAs have become essential tools for promoting trade, investment, and... partners in MAP discussions.

As of February 12, 2018, South Africa is signatory to 79 effective tax treaties that are principally for the elimination of double taxationDouble Taxation occurs when the same income or financial transaction is taxed twice, typically in different jurisdictions. It can arise in two primary contexts: economic double taxation, where the same income is taxed twice in the hands of different taxpayers, and juridical double taxation, where the same taxpayer is taxed on the same income in more than one country. Double... and the prevention of tax evasionTax Evasion refers to illegal activities or practices undertaken by individuals or businesses to avoid paying taxes. It involves intentionally misrepresenting or concealing income, inflating deductions, or underreporting earnings to reduce tax liability unlawfully. Unlike tax avoidance, which uses legal methods to minimize tax obligations, tax evasion is a criminal offence that carries significant penalties, including fines, imprisonment, and asset... and avoidance. South Africa is also signatory to the Multilateral Convention to implement tax treatyA Double Taxation Agreement (DTA), also known as a Double Taxation Treaty (or a Tax Treaty), is an international tax treaty between two or more countries that aims to prevent individuals or businesses from being taxed twice on the same income. With globalisation and the increase in cross-border economic activities, DTAs have become essential tools for promoting trade, investment, and... related measures to prevent base erosion and profit shiftingBEPS stands for "Base Erosion and Profit Shifting". BEPS refers to tax avoidance strategies used by multinational enterprises (MNEs) to exploit gaps and mismatches in the international tax system. By shifting profits from high-tax jurisdictions to low- or no-tax locations, MNEs reduce their overall tax burden, even if little to no economic activity occurs in the low-tax jurisdictions. These practices erode.... The Guide is a reflection of South Africas commitment to assist multinational enterprisesWhat are Multinational Enterprises (MNEs)? Multinational Enterprises, commonly referred to as MNEs, are corporations that operate in multiple countries through various subsidiaries, branches, or affiliates. These entities maintain a central management structure while leveraging diverse resources, labour markets, and customer bases across borders. The fundamental aspect that distinguishes MNEs from other corporate forms is their cross-border activity, which can include... under these bilateral and multilateral tax treaties.

Taxpayers should consider using MAP in a proactive strategy to prevent international tax disputesTax Disputes arise when there is a disagreement between taxpayers and tax authorities regarding the interpretation or application of tax laws. These disputes may concern various issues such as the accuracy of a tax return, the eligibility for tax deductions or credits, the correct amount of tax liability, or transfer pricing adjustments. Tax disputes can lead to lengthy legal proceedings..., as well as to resolve them in the post-BEPS environment. Countries are under increasing pressures from the OECDThe Organisation for Economic Co-operation and Development (OECD) is an international organisation comprising 38 member countries, established to foster economic growth, trade, and development on a global scale. Founded in 1961, the OECD provides a forum for governments to collaborate, share policy experiences, and develop solutions to common economic challenges. The OECD's core mission is to promote policies that improve... to resolve their MAP cases within 24 months, making it likely that MAP will become increasingly relevant for taxpayers.

The average time taken for SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently... to close MAP cases (as of January 1, 2016) was approximately 17 months for transfer pricingTransfer pricing is a fundamental concept in international taxation that defines the pricing methods and rules applied to transactions between related entities within a multinational enterprise (MNE). In the context of tax regulations, it governs how prices for goods, services, or intangibles (such as intellectual property) are set when these items are exchanged between different branches, subsidiaries, or affiliates of... cases and approximately 6 months for other cases. SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently... had a total of 13 open MAP cases as of December 31, 2017, according to the most recent OECDThe Organisation for Economic Co-operation and Development (OECD) is an international organisation comprising 38 member countries, established to foster economic growth, trade, and development on a global scale. Founded in 1961, the OECD provides a forum for governments to collaborate, share policy experiences, and develop solutions to common economic challenges. The OECD's core mission is to promote policies that improve... MAP statistics.

Multinationals often conflate the time MAP can take with advisor costs, whereas the reality is that this process, although it might take time, often has relatively modest cost implications for taxpayers, as it is the responsibility of the competent authorities to pursue and resolve cases once they have accepted them. Furthermore, the costs of MAP, due to the primary role in the process being played by the competent authorities, can be significantly lower than domestic litigation.

See our APA and MAP Country Guide for more information about MAP assistance.