It is well-established that, in terms of section 17(2)(a) of the Value-added Tax Act, No 89 of 1991 (VAT Act), a vendor is not entitled to deduct any amount of input tax in respect of goods or services acquired for the purposes of ‘entertainment’, unless certain exceptions apply. The Tax Court recently gave judgment in the case of AB (Pty) Ltd v Commissioner for the South African Revenue Service (case no 1015, as yet unreported) concerning input tax deductions and entertainment expenses.
Author: Nyasha Musviba
Tax Administration – Prescription and raising of additional assessments
Many taxpayers are generally aware that there is a prescription provision contained in our tax law. However, it is not always understood that the prescription provisions apply only if certain statutory requirements are met. In this regard it is not uncommon for SARS to assess taxpayers beyond the prescription period of three years. It is therefore necessary for taxpayers to understand the circumstances in which prescription will apply and also the relevant statutory provisions dealing with prescription. Section 79 of the Income Tax Act No. 58 of 1962 (the Act) contained the prescription provisions prior to the enactment of the Tax Administration Act No. 28 of 2011 (the TAA). These provisions are now contained in section 99 of the TAA.
Exempt Employment Income – Foreign Employment
In terms of current practice, remuneration derived from services rendered outside of South Africa is, subject to certain requirements, exempt from normal tax in South Africa in terms of section 10(1)(o)(ii) of the Income Tax Act, No. 58 of 1962 (the Act). The general rule is that income earned by a tax resident of South Africa from the rendering of services anywhere in the world will be included in ‘gross income’ as defined in section 1(1) of the Act. Notwithstanding the general rule above, certain exemptions are provided for, inter alia, in section 10(1)(o) of the Act in respect of remuneration which would likely have been subject to the deduction of employees’ tax under normal circumstances.
Value Added Tax – Zero rating of indirect exports
The Value-Added Tax (VAT) rules relating to the exportation of goods are rather complex and intricate. Many vendors do not always appreciate the issues that arise in circumstances where goods are exported, either by the vendor or the purchaser of the goods. The South African VAT system is essentially destination based, which means that the supply of goods or services are to be taxed in the country where such goods or services are consumed. In other words, where goods are exported from South Africa, the goods will be consumed outside of South Africa, and the supply of such goods should therefore not attract VAT in South Africa.
Tax Administration – SARS's power to recover tax
The Tax Administration Act No. 28 of 2011 (TAA) came into effect on 1 October 2012 (save for certain provisions that are still to come into force). This important piece of legislation seeks to incorporate into one Act all those administrative provisions (except for customs and excise) that are generic to all tax Acts and that were previously duplicated across all the different tax Acts. Significantly, the TAA provides the South African Revenue Service (SARS) with substantial powers in relation to important administrative aspects of tax, such as the collection of information and the imposition and recovery of tax.
Tax Administration – SARS Preservation orders
A Cape Town based businessman has been the subject of investigation by SARS into alleged VAT fraud, and has been issued with an assessment for R291 million. An unexplained gift to the daughter of the tax debtor When his daughter, a swimwear model, received – out of the blue and without explanation – an eye-wateringly large gift of $15.3 million (equivalent to some R143 million) from an unnamed Arab admirer plus two luxury cars worth R2.75 million, SARS suspected that this money and these assets were intended for her father and had been ostensibly channelled to her so as to avoid their being seized by SARS to fund the payment of her father’s tax debt.
Tax Administration – Understatement penalties before 1 October 2012
The promulgation of the Tax Administration Act No. 28 of 2011 (the TAA), which came into effect on 1 October 2012, brought into effect a basis for the imposition of penalties in respect of “understatements”. An understatement arises where a return is not submitted, amounts are omitted from or deductions are erroneously claimed in a return submitted to SARS. The understatement penalty is a percentage-based penalty applied to the “shortfall”. The shortfall is defined in the following terms in section 222(3):
Tax Administration – Reasonable care required for SARS to waive tax penalties
Judgment was handed down in the case of Harding v Revenue and Customs Commissioners [2013] UKUT 575 (TCC) in the Upper Tribunal (Tax and Chancery Chamber) on 15 November 2013. The case revolved around the question of whether an omission by a taxpayer of a severance payment in his tax return amounted to a ‘careless mistake’ in terms of the United Kingdom Finance Act, 2007 (UK Finance Act). Background The Appellant held a senior position in a company forming part of a leading accounting practice. He entered into a compromise agreement with his employer whereby his contract of employment was terminated and he received approximately £110,000.00 in severance payments (payment).
Tax deductions of Audit Fees
On 7th March 2014 the Supreme Court of Appeal delivered judgment in the case of Commissioner for the South African Revenue Service v Mobile Telephone Networks Holdings (Pty) Ltd, [2014] 76 SATC 205 which dealt with the deductibility of audit fees incurred for a dual or mixed purpose and the apportionment thereof for tax purposes in the light of section 11(a) of the Income Tax Act No. 58 of 1962 (the Act ), as amended read with sections 23(f) and 23(g) of the Act.
OECD releases first BEPS recommendations to G20 in accordance with Action Plan
As a part of the OECD/G20 project to combat base erosion and profit shifting (“BEPS”), the OECD released the first set of reports and recommendations on September 16, 2014. These reports address seven of the actions described in the 15-point action plan to address BEPS published in July 2013 (the “Action Plan”) and consist of the following items: Recommendations for domestic rules to neutralize hybrid mismatch arrangements and recommended changes to the OECD Model Tax Convention to deal with transparent entities (Action 2, the “Hybrids Report”);