On 18 November 2013 the South African Revenue Service (SARS) issued Binding Private Ruling 157 (BPR). The Applicant, a natural person and resident in South Africa, was a beneficiary of two non-resident discretionary trusts A and B. Trusts A and B held various foreign assets such as loan accounts, cash, and shares. Specifically, trusts A and B held all the shares in non-resident companies A and B. It was proposed that trusts A and B would distribute certain of their foreign assets to the Applicant. Upon receipt, the Applicant would donate the assets to a non-resident trust C.
Author: Nyasha Musviba
Tax Administration Act – Understatement penalty changes
Current provisions of the Tax Administration Act The Tax Administration Act No. 28 of 2011 (the TAA) became effective on 1 October 2012 and introduced the understatement penalty regime. In terms of section 222 of the TAA, a taxpayer must pay an understatement penalty in addition to the tax payable for the relevant tax period in the event of an “understatement”. What constitutes an “understatement”? An “understatement” is defined as any prejudice to the South African Revenue Service (SARS) or the fiscus in respect of a tax period as a result of:
Deductions – Interest in re-organisations
Amongst the slew of amendments, was an amendment regulating the deductibility of interest incurred in respect of reorganisation transactions. The amendment will affect the structuring of reorganisation transactions, especially those that are debt funded, with significant consequences for the taxpayer. The history To understand these amendments, one has to go back a few years to June 2011 when section 45 of the Income Tax Act (the Act),
Corporate Taxation – A group of companies for corporate rules
The Income Tax Act No. 58 of 1962 (the Act) contains a definition of a ‘group of companies’ in section 1 of the Act. However, a narrower definition of the term ‘group of companies’ is contained in section 41 of the Act, which applies to certain corporate tax roll-over rules and other provisions contained in the Act. It is important to identify which companies fall within the different definitions of a ‘group of companies’ in order to determine whether one qualifies for the applicable tax relief.
Capital Gains Tax and The effects of inflation
The South African capital gains tax (CGT) regime does not provide for indexation: it does not take into account the effect that inflation may have on capital profits over time. Consider the following example: A company bought an asset on 1 January 2002 for R1 000. The company sold the asset on 1 January 2013. The inflation rate during that period was, for example, 6% compounded annually. The company realised a return of, for example, 10% compounded annually, that is, a return of 4% above inflation compounded annually. Accordingly, the company sold the asset for an amount of R2 853. The company realised a nominal profit of
CSARS v Mobile Telephone Networks Holdings (Pty) Ltd (966/12) [2014] ZASCA 4 (7 March 2014)
Introduction The Supreme Court of Appeal delivered its judgement for the case between Commissioner for the South African Revenue Service v Mobile Telephone Networks Holdings (Pty) Ltd (966/12) [2014] ZASCA 4 on the 7th of March 2014. This case concerns itself with the apportionment of audit fees incurred for a dual or mixed purpose in terms of section 11(a) read with section 23(f) and (g). Facts The group structure were as follows: the respondent,
GW van der Merwe & 12 Others v CSARS – HC 1984-14 WC – 17 February 2014
Introduction The Western Cape High Court recently delivered its judgement in the application lodged by the first applicant being GW van der Merwe and others, for an order that a temporary interdict be issued preventing the second respondent, Piet JJ Marais, from commencing an inquiry authorised by Davis J, in terms of a court order made by virtue of the provisions of Part C of Chapter 5 of the Tax Administration Act, No 28 of 2011, pending the final outcome of an application to declare the relevant provisions of the Tax Administration Act which authorises such enquiry unconstitutional and invalid. Further, the applicants requested an order to have the third applicant, Elle-Sarah Rossato, to allow them access to the court file in order to enable the aforesaid review application to be made.
Davis Committee considering VAT at 16%?
Author: Ingé Lamprecht| JOHANNESBURG – An increase in the standard value-added tax (VAT) rate of 14% by one or two percentage points could reduce the pressure on the fiscus and would bring South Africa more in line with a number of international jurisdictions around the world. However, it will be an extremely unpopular move with unions and other political groups, who argue that it will be to the detriment of the poor. The Tax Review Committee, headed by Judge Dennis Davis, is currently considering potential amendments to the VAT system, with a specific focus on efficiency and equity.
Tax experts cheer move to fix transfer pricing
Author: Amanda Visser (BDlive) The headache of fictional loans attracting fictional interest “forever and a day” — caused by transfer-pricing rules changing in 2012 — appears to have been relieved by the latest budget. Before the Treasury’s move this year, a secondary transfer pricing adjustment — which occurs in some transactions between a company and its foreign subsidiaries — had been treated as a deemed loan. The problem is that a company can almost never get a deemed loan off its books as it is not a loan requiring repayment. The loan attracts interest, which has a tax implication, and this was set to become a recurring problem for companies and tax practitioners.
South Africa’s VAT changes: The impact on e-commerce
Author: Bowman Gilfillan The buying and selling of services over the internet has become ubiquitous. This article provides an update on the efforts of the South African Revenue Service (‘SARS’) and National Treasury (‘Treasury’) to bring foreign e-commerce suppliers on to a level tax playing field, by requiring them to register under the Value-Added Tax Act 1991 (‘the VAT Act’). In South Africa, it is usually the case that an entity selling goods or services will (i) be charged VAT (normally at a standard rate of 14%) on its inputs by its suppliers, (ii) charge VAT on its outputs to its customers, and