New rules governing the procedures to be followed in respect of objections and appeals, which are now prescribed in terms of section 103 of the Tax Administration Act, were published in the Government Gazette on 11 July 2014. One of the frustrations experienced by taxpayers involved in litigation with SARS is the fact that SARS frequently fails to deliver documents or decisions within the time limits prescribed in the rules governing the conduct of disputes.
Author: Nyasha Musviba
Rectification of an agreement in order to secure zero-rated VAT
The issue before the court in Milner Street Properties (Pty) Ltd v Eckstein Properties (Pty) Ltd [2001] ZASCA 95 was whether an agreement that was intended by the parties to be a zero-rated VAT disposal from one VAT vendor to another of an enterprise as a going concern but which failed to satisfy the formal requirements imposed by section 11(1)(e) of the Value-Added Tax Act 89 of 1991 could be rectified, with retrospective effect, so as to satisfy those requirements.
SARS must give proper reasons and have proper grounds
Author: Ben Strauss (DLA Cliffe Dekker Hofmeyr) The Tax Administration Act, No 28 of 2011 (TAA), together with the new rules for dispute resolution promulgated under the TAA on 11 July 2014 (Rules), govern the resolution of disputes between taxpayers and the South African Revenue Service (SARS). Generally, and in terms of s104 of the TAA, a taxpayer who is aggrieved by an assessment may object to that assessment.
Disposals by share incentive trusts
Author: Heinrich Louw (DLA Cliffe Dekker Hofmeyr) The South African Revenue Service (SARS) issued Binding Private Ruling 174 (Ruling) on 29 July 2014. The applicant was a share incentive trust established by a local company for the benefit of its employees in senior management. It was proposed that the company would make cash contributions to the trust and the trust would use the cash to purchase shares in the company on the open market.
Not all hybrids are cost effective!
Author: Webber Wentzel The provisions of section 8F became effective on 1 April 2014. In terms of this section any interest incurred on or after that date in respect of a “hybrid debt instrument” will be deemed to be a dividend in specie declared and paid on the last day of assessment by the company; and is not deductible for income tax.
Getting to grips with Base Erosion and Profit Shifting (BEPS)
By AJ Jansen van Nieuwenhuizen, Tax Partner, Grant Thornton Johannesburg The winds of change blowing through South Africa to expand its tax base and revenues are not unique. Countries around the world are looking for ways to improve their financial situation and their attentions are increasingly focused on company profits. Especially since the low levels of corporate tax which multinationals like Amazon, Apple, Google and Starbucks paid in the past hit world headlines in 2013 and the term Base Erosion and Profit Shifting (BEPS) became commonly used in government and business circles.
Tax implications of expenditure funded by government grants
By Christel du Preez, Senior Tax Manager, Grant Thornton Johannesburg Section 12P was introduced into the Act to deal with government grants received by taxpayers and applies to years of assessment commencing on or 1 January 2013. As a result, taxpayers are now facing potentially complex rules that could have an adverse effect on their tax planning efforts.
Datakor case is still alive for new debt reduction rules
By Barry Visser, Associate Director: Tax, Grant Thornton Johannesburg Old debt reduction rules The matter of CIR v Datakor Engineering (Pty) Ltd 1998 (4) SA 1060 (SCA) related to a company (Datakor) that entered into an arrangement whereby Datakor’s creditors relinquished their claims against it in exchange for preference shares in the company. It was held that the discharge of a contractual obligation, to pay a debt, through the issue of shares, amounted to a compromise. The court concluded that the compromise benefited the company as it was absolved from its obligation to settle the debt.
New binding private ruling on plant used in the production of renewable energy
SARS released BPR 172 on 25 June 2014. The ruling deals with the question of whether various items used in the production of solar energy qualify for the section 12B allowance. By way of background, section 12B(1)(h) read with section 12B(2) of the Income Tax Act allows a deduction on a 50:30:20 basis over three years of any ‘machinery, plant, implement, utensil or article owned by the taxpayer … and which was or is brought into use for the first time by that taxpayer for the purpose of his or her trade to be used by that taxpayer in the generation of electricity from:
SARS issues new binding private relating to debt SARS issued Binding Private Ruling 173 on 2 July
SARS issued Binding Private Ruling BPR 173 on 2 July. The ruling purports to deal with a thorny issue which has been the cause of uncertainty but unfortunately raises more questions than answers. The issue is whether the debt reduction provisions of the Income Tax Act, namely section 19 or paragraph 12A of the Eighth Schedule, would be invoked where a company issues shares and utilises the proceeds from the share issue to repay debt.