The National Treasury released the first batch of fiscal amendments on 10 June 2014. One of the most significant amendments relates to the way in which risk policies will be taxed in the hands of long-term insurance companies (“Insurers“). By way of background, the business of an insurer has to date been divided into four separate funds for tax purposes, being – the individual policyholder fund relating to policies owned by individuals; the company policyholder fund relating to policies owned by corporates; the untaxed policyholder fund relating to policies owned by untaxed entities and annuity contracts; and the corporate fund which reflected the remaining assets of the insurer.
Author: Nyasha Musviba
The fine line between a restricted and unrestricted equity instrument
The complex tax legislation applicable to share incentive schemes has resulted in a number of taxpayers requesting advance tax rulings from the South African Revenue Service (SARS). On 30 May 2014, Binding Private Ruling No. 170 (Ruling) was released by SARS, which dealt with the question of whether the conditions imposed on an employee in respect of an employee share scheme would result in the shares constituting ‘restricted equity instruments’ for purposes of s8C of the Income Tax Act, No. 58 of 1962 (Act). It is clear from the Ruling that there is often a fine line between whether or not one is dealing with a ‘restricted equity instrument’.
Value Added Tax – Barter transactions
The fundamental governing principle of value-added tax (VAT) is that it is levied on the supply of goods and services by a vendor, and that the vendor can claim input tax in respect of goods and services received. It can be difficult enough dealing with the administrative aspects of VAT and determining the correct VAT treatment of transactions – imagine the additional frustration created when the South African Revenue Service (SARS)
Tax Avoidance (GAAR) – Real intention of contracting parties
CIR v Sunnyside Centre (Pty) Ltd [1996] 58 SATC 319 clearly stated that South African taxpayers must sleep in the (contractual) beds they make: “When a scheme works, no tears are shed for the Commissioner. That is because a taxpayer is entitled to order his affairs so as to pay the minimum of tax. When he arranges them so as to attract more than the minimum he has to grin and bear it.”
Tax Administration Act – Applications to rescind a "judgment"
The judgment reported as Kadodia v CSARS [2013] 75 SATC 313 is a decision of the KwaZulu-Natal High Court in which the applicant taxpayer unsuccessfully applied to court for rescission of a “default judgement” granted against him in terms of section 114(1)(a)(ii) of the Customs and Excise Act, No. 91 of 1964 (the Customs and Excise Act). The judgment was in respect of an alleged underpayment of customs duty and value-added tax amounting to R171 731.
Tax Administration Act – Search and seizure requirements
In an unreported decision, Jen-Chih Huang and 13 others v Commissioner of SARS and others with case number: SARS 4/2013 and dated 18 November 2013 (the Unreported Judgment), Tuchten J of the North Gauteng High Court handed down an important judgment in relation to information and documentation obtained by the South African Revenue Service (SARS) in terms of Part D of the Tax Administration Act No. 28 of 2011 (the TAA).
Public Benefit Organisations (PBO) – Requirements for approval
Fiscal policy, as manifested in the Income Tax Act No. 58 of 1962 (the Act), is that philanthropy should be encouraged. The Act achieves this objective by providing that, subject to certain criteria being met and subject to limitations, charitable organisations enjoy a very favourable tax regime and taxpayers who make donations to such organisations may deduct the donations for income tax purposes.
International Tax – Bilateral assistance in tax matters
High net worth individuals and their associated trusts have in the past been identified by the South African Revenue Service (SARS) as posing a risk of non-compliance to tax legislation. The recent confirmation of a preservation order by the North Gauteng High Court in C: SARS v Krok and Jucool Enterprises Inc. (Case No. 1319/13) now renews the focus of SARS in this regard.
International Tax – OECD – Common Reporting Standard
On 13 February 2014, the Organisation for Economic Co-operation and Development (OECD) released a common reporting standard (CRS) document, which seeks to establish automatic exchange of tax information as the new global standard for governments.
International tax transparency: the need for automatic exchange of information
In recent years, the international tax environment has seen an increase in the global drive towards greater financial transparency and the automatic exchange of financial information, which replaces the earlier standard of information exchange on request.