Global Tax Alert | 6 May 2013

South African Revenue Service continues increased scrutiny of permanent establishment exposure risk

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Due to the ever increasing infrastructure/power energy activity in South Africa in the past couple of years, the South African Revenue Service (SARS) has increased its scrutiny with respect to permanent establishment (PE) exposure risk for foreign companies doing business in South Africa.1 Accordingly, the SARS has been specifically focusing on foreign companies contracting with local entities (both private and government entities). This trend has also become increasingly evident in the South African mining sector in recent times.

The trend of SARS queries to request information from South African tax resident entities as to their contractual arrangements with offshore entities for the provision of services/goods in South Africa, both in the infrastructure and the mining arena, has continued unabated. This is generally the first step in assisting SARS to assess the foreign entities' activities in South Africa from a permanent establishment perspective, among other things. This is clearly a “hot topic” within the SARS and companies are facing increasing queries. .

In addition, the SARS is making further queries addressed to the respective foreign entities based on the information obtained from the initial queries.

The SARS has continued to request fairly specific information which includes, but is not limited to the following:

  • A description of the primary business activities of the South African entity, as well as the foreign entity;
  • Details of the contractual arrangement between the South African tax resident entity and the non resident entity/non resident individual to assist, advise, plan, supervise or consult on any of the South African entity's activities in South Africa;
  • Details of any contractual arrangements between the South African tax resident entity and the offshore entity for the supply of goods and machinery;
  • Specific details as to employees of the foreign entity spending time in South Africa relating to consulting services, technical services, installation or general assistance training;
  • Details as to the contract fee;
  • Details of the duration of the contract plus confirmation of any extension of scope or duration of the project; and
  • Details as to whether the foreign entity has been registered for tax.

The SARS queries specifically state that the information is required for the purposes of determining whether a South African permanent establishment has been created by the foreign contractor utilized by the South African company during the period under review. It is important for companies to be aware of this trend and consider action to assess past exposures and identify where action may need to be taken to comply with existing South African tax requirements.


1. See EY Global Tax Alert, Increased South African permanent exposure risk, dated 21 December 2011.

For additional information with respect to this Alert, please contact the following:

EY Advisory Services Ltd, Johannesburg, South Africa
  • Justin Liebenberg
    +27 11 772 3907
  • Jacqui Peart
    +27 11 772 3045
EY (China) Advisory Services Limited, Pan African Tax Desk, Beijing
  • Rendani Neluvhalani
    +86 10 5815 2831
Ernst & Young LLP, Pan African Tax Desk, New York
  • Dele Olaogun
    +1 212 773 2546
Ernst & Young LLP (United Kingdom), Pan African Tax Desk, London
  • Leon Steenkamp
    +44 20 7951 1976

EYG no. CM3418