SARS Auditing More Large Multinationals Says Tax Expert

by Robert Lee, Tax-News.com, London

25 July 2003

The South African Revenue Service is stepping up the number of audits that it conducts on large multinationals, a local tax expert told a conference organised by accounting firm Deloitte and Touche this week.

Whilst the last 18 months has seen the Revenue Service concentrating on certain sectors, such as the IT, pharmaceutical, and automotive industries, a number of recent arrests connected to transfer pricing issues is a warning sign that SARS is mounting a campaign against tax evasion, according to Deloitte and Touche tax partner John Stanley.

Speaking at the conference, Mr Stanley told the audience that there had been increased scrutiny of firms mis-using transfer pricing, a technique often employed by international companies to minimise tax. It involves the use of overseas subsidiaries to over-invoice costs to the home holding company, thus transferring profit out of the country. Europe, the United States and South America are particularly keen to clamp down on this activity, Stanley observed, according to a Business Day report.

Mr Stanley warned firms to have watertight compliance structures in place in order to avoid any recriminations from the tax authorities. It is especially important for transactions between the relevant parties to be conducted at the correct market value he added, as if SARS detects a discrepancy in this respect, it has the power to make adjustments on tax returns.

In the past year, revenue collected from transfer pricing cases has totalled R6.45 billion, significantly above SARS's target of R5.5 billion, according to Revenue Service figures.

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