Draft Interpretation Note on Intra-group Financial Arrangements

Shazia Raviduth and I wrote the below article based on our comments which we submitted to SARS. What are your thoughts on this Interpretation Note?

On 11 February 2022, the South African Revenue Service (SARS) released a new Draft Interpretation Note (Draft IN) on Intra-Group Financial Transactions for public comment. This Draft IN was welcomed by the South African transfer pricing community, including BDO, as intra-group financial arrangements have been a contentious issue for a number of years. The release of the Draft IN also reinforces that this is an area which SARS will actively be placing under scrutiny. Intra-group financing arrangements have been known to create opportunities for base erosion and profit shifting (BEPS).

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Update on IBOR transition and transfer pricing

I wrote an article on the IBOR transition from a South African perspective about a year ago. The article focused on what “IBOR transition” means and on how to get ready for it should you have active arrangements referencing IBOR. You can find the article here.

From earlier this year some IBOR rates are no longer published. The big example is USD LIBOR, which many have referenced to provide for an interest rate in their agreements. Let’s assume we still have agreements in place as of right now that reference USD LIBOR but as this is no longer published, how do I determine my interest rate. This also assumes the agreement does not have another rate to use in case USD LIBOR is no longer available. The below are some points to consider from a transfer pricing perspective. There are potential other tax consequences that may also arise from this but I have tried to stay clear of those, as it can be a lot to digest in one blog post.

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What does the new financial transactions guidance provided by the OECD mean for you?

What is it all about?

More than 18 months after the publication of its non-consensus discussion draft on Financial Transactions (BEPS Actions 8 to 10), the OECD released its ‘final’ report on the transfer pricing of financial transactions on Tuesday 11 February 2020. The original draft left some 25 areas of disagreement, representing a non-consensus position of the OECD’s Committee on Fiscal Affairs. While those areas are largely resolved by the guidance, there remain some issues that have not been definitively addressed.

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