Digitalisation to enhance country-by-country reporting for effective tax risk assessment in South Africa

Abstract

In 2015, The OECD released an 15 point action plan to combat base erosion and profit shifting (BEPS). Amongst those actions is action 13 which deals with the implementation of Country-by-Country (CbC) reporting on Multinational Enterprises (MNE). Even though South Africa is not an OECD member, it adopted the implementation by enacting CbC reporting into law in December 2016. CbC reports give an overview of how local entities fit into their large group structure of the MNE which in turn will increase the tax transparency in the jurisdictions it operates from. Therefore, CbC Reports can be a great tool for tax administrations to assess tax risk. CbC reports are exchanged electronically between tax payer and tax administration as well as between different tax administrations of the different jurisdictions, thus the use of a digitalised system is of high importance as it will ultimately lead to better tax transparency. This approach of this work is qualitative in nature and the OECDs guidelines and corresponding sections in South Africa‘s Income Tax Act were analysed. Throughout this study South Africa and India‘s tax administrations are being compared, with recommendations drawn from the Indian tax administration. This study addresses the use of CbC Reports in the risk assessment procedure as well as the current tax risk assessment procedures in both countries. The study goes further by explaining the concept of digitalisation and then gauges the digital competence of South Africa‘s and India‘s tax administration according to an gauge set out by EY. There are numerous challenges that are a result of digitalisation of the tax administration. The findings of study prove that South Africa has already made progress towards a digitalised tax administration however there is room for improvement. Furthermore, as the tax administration progress, CbC reports will become more effective as a risk assessment tool. Lastly, the study imparts that even with the challenges that digitalisation of the tax administration brings about, the benefit of a digital tax administration providing tax transparency will be able to overcome these challenges.