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South African IT firms asked to disclose foreign trade

May 30, 2017 • Enterprise, Features, Finance, Sponsored

IT companies will have to reveal foreign trade

IT companies will have to reveal foreign trade to SARS.

In what is seen as a major development, the South African Revenue Service (SARS) has tightened up its criteria for what multinational businesses are allowed to submit to the tax man. The new laws state that medium and large businesses in South Africa that are part of multinational companies have to disclose where their money goes.

Due to be signed into law very soon, SARS’ thinking is to avoid so-called “profit shifting”, where money made in South Africa could be moved to accounts in another country. If successful, this move by the tax authorities could help to recoup billions of Rand in lost revenue.

The IT sector in South Africa is among those most likely to be affected. Telecoms giant MTN, who operate in many other parts of the continent, will definitely have to comply with the new rules. The same applies to the local operations of Microsoft and SAP, who are both major employers in this country.

Tightening rules

South Africa-based businesses that have to comply with the new rules are expected to:

● Submit a ‘Master File’ that details the group’s total income, inclusive of any business done in other countries
● Submit a so-called ‘Local File’, detailing their business activity in South Africa only, ensuring that they pay the correct amount of income tax

Compiling all of the relevant paperwork will be a challenge. However, an even bigger obstacle to overcome is compliance with the tightened rules. Making sure all of the figures are accurate and that the correct amount of tax is paid is imperative to avoid the risk of being fined.

To stay within the law, companies are now required to take a forensic look at their finances in relation to business done exclusively in South Africa and overseas. Whilst the likes of MTN will have the resources to cope with the new laws, smaller IT companies will find it harder to deal with, needing to undertake double the amount of admin work needed.

Transparency needed

As part of SARS’ wider attempts to clamp down on tax evasion, transparency is advised by all IT businesses with foreign clients and operations. Businesses that are unclear about the new laws may need to hire tax auditors. Such a move may be taken by many enterprises to avoid the threat of being fined by SARS.

An audit will involve listing every single expenditure and movement of capital. It will also help companies to know how much, if anything, they are transferring from their South African operation to a part of a multinational in another country. This step alone can remove a lot of the work for businesses, but what of the future?

Impact on tech firms

Earlier this month, SARS’ annual performance plan revealed that targets for tax revenue had been missed. Among the revelations from the plan includes lowering rates of tax compliance amongst businesses and individuals and perceptions of how well that SARS have done their job.

Estimates suggest that last year, MTN employed over 22,000 people across Africa, the Middle East and parts of Europe. Thousands more work for the likes of Telkom, Vodacom, SAP and many smaller IT firms.

Should any of them fail to abide by the new rules and receive a hefty fine, some of those jobs could be at risk, as the companies try to meet the cost of a multi-Rand bill. The deadline for companies with multinational operations to disclose details of their foreign trade is December 31st 2017.


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