Author: Nyasha Musviba

Introduction The definition of headquarter company (“HQC”) was introduced as section 9I of the Income Tax Act No. 58 of 1962 (“the Act”) with effect from the commencement of years of assessment commencing on or after 1 January 2011. The purpose of the HQC regime was to make South Africa an attractive location for multinationals wishing to invest in Africa.

Introduction South African companies are increasingly looking to global expansion to build their capabilities and expand their operations into foreign jurisdictions. Where South Africans serve on the boards of foreign companies and render services to foreign entities, they typically do so in terms of split employment contracts in respect of their services rendered within and outside of South Africa. In addition to the remuneration, they may also receive directors’ fees for services rendered to the boards. Their employment contracts with the foreign company and the requirement that such services must be rendered outside of South Africa, are essential to ensure that these foreign entities are effectively managed in the countries where they are registered, and not in South Africa.

The 2013 draft Taxation Laws Amendment Bill (“DTLAB”) was issued by National Treasury for public comment on 4 July 2013. In accordance with the Explanatory Memorandum to the DTLAB, the tax legislation currently contains an anti-avoidance rule that deals with debt instruments that have equity features (“hybrid debt instruments”). The anti-avoidance rule denies a deduction in respect of any amount paid or payable in terms of a hybrid debt instrument. However, the hybrid debt instrument remains a debt instrument for all other purposes of the Income Tax Act 58 of 1962 (the “Act”).