Author: Nyasha Musviba

On 9 November 2018, the South African Supreme Court Appeal (“SCA”) handed down an important judgment in which it upheld Sasol Oil (Pty) Ltd’s appeal against a judgment of the Gauteng Tax Court.  The facts of the case were complex, but concerned certain back-to-back supply transactions entered into by a number of entities, including Sasol Oil, which the South African Revenue Service (“SARS”) contended were simulated.  An Isle of Man company in the Sasol group (“SOIL”) sold oil to a UK group company (“SISL”) which, in turn, sold it to Sasol Oil in South Africa. If SOIL had instead sold the oil it had purchased directly to Sasol Oil in South Africa, the controlled foreign company rules may have applied to allocate taxable amounts to SOIL’s South African shareholder.  However, the controlled foreign company rules did not apply to these transactions for SOIL, since it did not sell the oil Read More …

Author: Taryn Solomon. Receiving and responding to a request for relevant material from the South African Revenue Service (“SARS”) and generally dealing with SARS during an audit or a dispute can be a daunting task for any taxpayer. In this article, we go back to basics in briefly discussing the processes followed by SARS during audits and disputes (up to the appeal stage), including providing some tips and insights in dealing with SARS in these processes, which may assist taxpayers in navigating their way through them. Request for relevant material and audit findings SARS has wide information gathering powers in terms of section 46 of the Tax Administration Act, 2011 (“TAA”) and may require a taxpayer or another person to submit relevant material “for the purposes of the administration of a tax Act”. A taxpayer or another person must be given a “reasonable period” within which to submit the relevant Read More …

Authors: Lavina Daya and David Marais. When debt is reduced or written off, certain adverse tax consequences may arise for the debtor. The tax provisions dealing with the debt relief rules are contained in section 19 and paragraph 12A of the Eighth Schedule to the Income Tax Act, 1962 (the “Act”). The current debt relief rules were introduced by the Taxation Laws Amendment Act, 2017 and are applicable in respect of years of assessment commencing on or after 1 January 2018.  The trigger for the application of these debt relief rules is a “concession or compromise”. The definition of “concession or compromise” as it currently reads is widely worded with the result that a change to the terms of a loan, for example, the redenomination of the currency of a loan from say, USD to ZAR, may trigger the debt relief rules. The Draft Taxation Laws Amendment Bill, 2018 (“Draft Read More …

Authors: Jens Brodbeck, Jo-Paula Roman, Megan McCormack and Scott Salusbury. Transfer pricing is a self-assessment mechanism that aims to ensure that taxpayers identify all potential cross-border transactions, operations, schemes, agreements or understandings that have been entered into between connected persons (referred to as “potentially affected transactions”), to ensure that all such potentially affected transactions have been concluded and implemented on an arm’s length basis.  Ideally, where a taxpayer has been a participant to a potentially affected transaction, the taxpayer would ensure upfront that the potentially affected transaction has actually been concluded and implemented on an arm’s length basis.  However, where the terms and conditions of that potentially affected transaction differ from those that would have existed at arm’s length, the taxpayer is required, in terms of section 31(2) of the Income Tax Act, 1962 (“Income Tax Act”), to calculate its taxable income as if the terms and conditions of the Read More …

Author: Peter Dachs. Groups of companies often wish to restructure or rationalise their operations. This generally involves a transfer of companies and/or assets between various entities. There are many commercial drivers for such transactions. There are also a variety of ways in which the group can achieve its commercial goals. Depending on how the transactions are structured, the tax effects will be very different. There will be tax-efficient ways in which to achieve the group’s commercial goals and there will be tax-inefficient options which achieve the same commercial result. Against this background, it is then necessary to apply South Africa’s anti-tax-avoidance provisions. In simple terms, there are two sets of rules which need to be considered. First, the statutory anti-tax-avoidance provisions contained in section 80Al of the Income Tax Act; and second, the common law provisions relating to simulated transactions. In respect of the statutory rules, the principle that a Read More …

Authors: Anne Jenkinson and Annelie Giles. The South African Revenue Service (“SARS”) issued Binding General Ruling No. 48 (“BGR 48”) on 25 July 2018, which provides much needed clarification for residential property developers following the recent cessation of relief under section 18B of the Value-Added Tax Act, 1991 (the “VAT Act”). Background The development and sale of residential properties generally form part of a vendor’s VAT enterprise and are subject to VAT at 15% (14% prior to 1 April 2018). In contrast, the letting of a residential property or unit is exempt from VAT.  In principle, VAT incurred by a vendor on the cost of developing residential property for sale may be claimed as an input tax deduction (subject to the normal rules governing input tax deductions). However, where an asset that has been acquired for taxable purposes is applied, albeit temporarily, for exempt or other non-taxable purposes, the vendor Read More …

Authors: Jenny Klein and Sheryl Kunaka. The South African Draft Taxation Laws Amendment Bill, 2018 (the “Draft Bill”), which was published by the Minister of Finance on 16 July 2018, introduces many of the tax proposals announced in the 2018 Budget Review earlier this year.  Consistent with the general trend of combatting perceived areas of tax avoidance, among the tax changes contained in the Draft Bill are proposed amendments to the provisions in the Income Tax Act, 1962 (the “Act”) dealing with foreign trusts that hold the majority of the shares in an underlying foreign company. The Explanatory Memorandum on the Draft Bill states that the proposed amendments are intended to close the loophole in the current tax legislation regarding the use of trusts to defer tax or recharacterise the nature of income. The current position is that the controlled foreign company (“CFC”) rules in the Act do not apply Read More …

Authors: Joon Chong (Partner) and Arlia Abdul Alli (Candidate Attorney), Webber Wentzel. In the case of Mr A and XYZ CC v The Commissioner of the South African Revenue Service the Tax Court had to determine whether the conduct of the appellants was properly classified by SARS as ‘grossly negligent’ for purposes of imposing understatement penalties. The first appellant failed to submit income tax returns for the 2007 to 2010 tax years and value-added tax (VAT) returns for the 4/2006 to period 2/2010 VAT periods. The second appellant failed to submit income tax returns for the 2011 and 2012 tax years and VAT returns for the 9/2010 to 1/2013 VAT periods. These circumstances led to audits in the tax affairs of both taxpayers. The assessments which resulted from the audit included substantial penalties which were challenged in the appeal. During the course of the appeal, the Commissioner as the respondent Read More …

Authors: Joon Chong (Partner), Nina Keyser (Partner), Carryn Alexander (Associate), Nabeelah Edwards (Candidate Attorney) – Webber Wentzel. Where fixed monthly payments made up less than 75% of private company director remuneration, paragraph 11C of the Fourth Schedule to the Income Tax Act 58 of 1962 used to apply to require payment of employees’ tax for such directors on a monthly basis in respect of “deemed remuneration”. This “deemed remuneration” was a notional amount determined in terms of a formula in paragraph 11C. Paragraph 11C was repealed with effect from 1 March 2017. The draft 2018 Tax Administration Laws Amendment Bill, which was released for comment on 16 July 2018, now proposes to remove directors of private companies from the definition of “employee” in the Fourth Schedule (thus appear to be exempting directors of private companies from employees’ tax) with effect from 1 March 2019, in order to be in line Read More …

Authors: Wesley Grimm, Associate and Craig Miller, Director – Webber Wentzel. The taxation of real estate investment trusts (REITs) was discussed at the recent National Treasury Workshop on the 2018 draft Taxation Laws Amendment Bill, held on 4 September 2018, in Midrand. The correct tax treatment of certain anomalies, including the taxing of commercial lease deposits, was raised. Commercial lessors typically hold significant deposits from tenants, both in number and value. A view has emerged among certain officials at SARS that commercial tenant deposits comprise gross income where such amounts are not deposited into a separate bank account. It is trite law that a taxpayer may not be subject to tax on amounts received by them for the benefit of another. Though commercial lessors receive tenant deposits, such deposits are not received by them on their own behalf and for their own benefit. In the case of Omnia Fertilizer Limited Read More …