Author: Okkie Kellerman and Esther Geldenhuys – ENSafrica In line with recent pronouncements by the OECD relating to so-called Base Erosion and Profit Shifting Project (BEPS), section 23M was introduced by the Taxation Laws Amendment Act, 31 of 2013. Section 23M of the Income Tax Act, 58 of 1962 (“the Act”) will come into effect on 1 January 2015 and has a similar purpose to the thin capitalisation provisions of section 31 of the Act. The Taxation Laws Amendment Bill, 13 of 2014, as tabled in parliament, contains a number of substantial amendments to the current provisions of section 23M. A summary of the provisions of section 23M following these amendments is set out below.
Author: Nyasha Musviba
Pensions received by SA residents from SA pension funds for services rendered partly abroad
Author: Jenny Klein – Tax Manager at ENSafrica Many South Africans spend significant periods of time working outside the country. Due to the fact that South Africa taxes the world-wide income of its residents, payments received by residents for services rendered outside the country are included in their gross income for South African tax purposes, but may subsequently be excluded from their taxable income in terms of any available exemptions. Whilst this may be the case the question is often posed whether any similar exemption may apply to their pension benefits received upon retirement from their South African pension fund in relation to the period of services rendered abroad.
Dividend payments to Holland – did you spot the aperture?
Author: Stephan Spamer and Howmera Parak – ENSafrica By now it is accepted that the payment of dividends to non-South African shareholders are subject to dividends tax which is levied at a rate of 15%, unless such rate is reduced by an applicable double tax agreement (DTA). To this end, most DTAs are drafted in such a manner that the rate of dividends tax is reduced to 10% or 5%, depending on the percentage of shares the beneficial owner holds in the South African company.
Base erosion and profit shifting (“BEPS”) – Are you BEPS proof?
Author: Okkie Kellerman – Tax Executive at ENSafrica BEPS is a term used by the Organisation for Economic Co-operation and Development (“OECD”) to describe tax planning strategies exploiting gaps and mismatches in tax rules so that profits disappear for tax purposes or profits are shifted to locations with little or no real activity and where profits are subject to little or no taxes. Although BEPS is not illegal it distorts competition between those companies operating cross border and those operating domestically and it leads to inefficient allocation of resources and it seems unfair that some companies can legally avoid paying tax.
Base erosion and profit shifting – treaty shopping
Author:Peter Dachs – Tax Director at ENSafrica The concept of base erosion and profit shifting (“BEPS”) has been much discussed at various international forums including the G20 Finance Ministers and Central Bank Governors meeting in July 2013 in Moscow as well as the G20 Heads of State meeting in September 2013. From a South African perspective, the Davis Tax Committee has been set up, inter alia, in order to address the issue of BEPS in a South African context.
Interest-free shareholder loans
Author:Liesl Kruger – Tax Consultant – ENSafrica Loans between companies and their shareholders, or other group companies are a common method of providing finance in the South African corporate environment. Loans of this nature may, however, give rise to tax implications in the hands of the lender or the recipient, and careful consideration should therefore be given to these transactions.
The transfer pricing compliance conundrum
Author: AJ Jansen van Nieuwenhuizen, Tax Partner, Grant Thornton Johannesburg By now, most South African taxpayers should be aware that when they enter into transactions with related parties who are not South African taxpayers, such transactions should be concluded on terms and prices that are at arm’s length in nature. The term “arm’s length” essentially indicates a position that two unrelated parties would adopt in an open market transaction, as a willing buyer and willing seller. Critical to managing tax risk for any taxpayer that has transactions of this nature is being able to defend the transfer pricing (TP) position that they have adopted and the only way to adequately do so is through the preparation of TP policy documentation.
Proposed amendments to Section 9D could offer a simpler means to avoid controlled foreign company imputations
Author: Bruce Russell, tax consultant, Grant Thornton Cape The controlled foreign company (CFC) provisions seeks to reduce the opportunity for income to be diverted and taxed offshore in the hands of foreign companies where: South African tax residents may exercise, directly or indirectly, a majority of the voting rights in the foreign companies or where South African tax residents may participate, directly or indirectly, in the majority of the benefits attached to shares of the foreign companies. In terms of Section 9D of the Income Tax Act, a hypothetical taxable income, “net income”, is calculated as if the CFC is South African tax resident. This net income may be included in the taxable income of the South African tax resident shareholders.
Proposed tax changes to restraint of trade payments
Author: Douglas Gaul, tax manager, Grant Thornton Johannesburg Paragraph (cA) of the definition of gross income was introduced into the Income Tax Act with the intention of preventing avoidance schemes whereby payment due to an employee was disguised as a capital payment for the so-called restraint of trade compensation. This inclusion has however had an impact on legitimate restraint of trade payments and is therefore being reconsidered again. Prior to the introduction of this paragraph, it may have been possible for an employee to avoid paying normal tax on such payments (at the maximum marginal rate of 40%), despite possibly paying capital gains tax at the significantly lower rate of 13.3%.
Good VAT-news from SARS
Author: Cliff Watson, associate tax director, Grant Thornton Johannesburg Repeal of zero rating for farmers In a previous e-taxline (link), we alerted our readers of the potential disadvantage farmers would face as a result of SARS and National Treasury’s proposal to repeal the zero-rating of certain goods such as animal feed, animal remedy, fertilisers and pesticides that are used or consumed for agricultural, pastoral or other farming purposes from 1 April 2015. The proposal would effectively add an additional 14% cost to acquire these products for farmers who are currently qualifying for the zero-rate, naturally affecting these farmers’ cash flows negatively.