Author: Wendy Lumsden (Mazars) In South Africa, as is the trend internationally, the focus on transfer pricing is growing. Both the Organisation for Economic Co-operation and Development (OECD) and the Davis Tax Committee have recommended changes to enforce arm’s length transacting within multinationals. As the focus by tax authorities on transfer pricing continues to escalate, we consider the necessity for South African clients to properly determine arm’s length prices and prepare transfer pricing policies based on transfer pricing research and analysis.
Author: Nyasha Musviba
VAT and the recovery of costs
Author: Seelan Moonsamy (ENSafrica) The question of whether VAT must be levied on costs that are on-charged often arises, particularly when no VAT was incurred on the cost in the first instance. The issue is most prevalent in the services industry where a consultant, for example, seeks to recover from his client certain costs that the consultant has incurred in rendering services to the client.
The right of tax authorities to demand production of documents
A recent decision in the Federal Court of Canada in the matter of Minister of National Revenue v BP Canada Energy Company 2015 FC 714 dealt with the Canadian law concerning the right of the Canadian Revenue Authority (‘CRA’) to demand information from taxpayers. In the preparation of its annual financial statements, BP Canada Energy Company (‘BP’) prepared workings in which it analysed tax positions that it had taken in which there might have been a difference between its interpretation of the law and the interpretation of the CRA. These working papers supported a reserve for tax contingencies. They also listed issues on which the interpretation was uncertain (‘issues list’).
Proposed amendments to the Tax Administration Act No. 28 of 2011 in relation to legal privilege
Authors: Robert Gad and Megan McCormack (ENSafrica) The draft Tax Administration Laws Amendment Bill of 2015 (“TALAB”), published for public comment on 22 July 2015, proposes the introduction of a new section 42A into the Tax Administration Act No. 28 of 2011 (“TAA”), dealing with the procedures to be followed where legal professional privilege (“Privilege”) is asserted by a taxpayer. These procedures are particularly onerous on the taxpayer and may result in undue delays in the tax dispute resolution process, particularly in relation to discovery proceedings.
Exchange control stupidity
The standard argument from National Treasury about exchange controls is basically as follows: ‘We don’t have enough foreign exchange reserves so they can’t be abolished – so we’ll do nothing (except up a few limits every few years). The debate therefore goes nowhere. My question is: Even accepting that National Treasury feels that exchange controls can’t be abolished, why does no one in the National Treasury or the South African Reserve Bank (Sarb) seem interested in meaningful administrative reform and cutting red tape while we wait for our reserves to increase? You would probably think from the representations made by the exchange control authorities to the High Court, the Supreme Court of Appeal and the Constitutional Court over the last two years that very high-powered complex financial issues are at stake – as well as the country’s economic viability as a whole. It has been argued up to Constitutional Court level that Read More …
The Mark Lifman judgment: the High Court refuses to interdict the enforcement by SARS of a judgment taken against the taxpayer
Mark Lifman has recently been the subject of many lurid newspaper stories, with City Press describing him as ‘one of South Africa’s biggest underworld bosses and one of Cape Town’s richest and most feared underworld figures’. It has been reported that he owes SARS some R388 million in tax. Not for the first time in history has a powerful underworld figure met his Waterloo when engaging with the tax authorities. A judgment of the Cape Town High Court delivered on 17 June 2015 (but not yet reported) recorded that Lifman and various close corporations of which he was the sole member owed an undisputed tax debt to SARS of over R13 million (some R3 million of which was owed by Lifman personally) that had accumulated over some ten years. Further tax debts (see para [6]) were still in issue.
Venture capital embraces tax breaks
Author: Stephen Timm (BDlive) The number of venture capital companies approved by the South African Revenue Service (SARS) to take advantage of a venture capital tax incentive has increased to 19, following amendments to tax legislation that took effect in April. The incentive was introduced in 2009 by the National Treasury in terms of section 12J of the Income Tax Act to spur investments in small businesses through approved venture capital companies. However, because of the onerous criteria, there was initially limited interest. By August 2013 only one small business had benefited from an investment using the new tax regime.
The turnover tax system: Barriers to small businesses
Author: Leonard Willemse (Mazars) According to the Explanatory Memorandum on the Revenue Laws Amendment Bill, 2008 (EM) small businesses in South Africa are instrumental in the growth of the South African economy as it is a source of job creation and a counter to poverty. Research, however, indicates that small businesses face many obstacles, such as relatively high tax compliance costs relative to their turnover. This is due to the generally high fixed costs associated with systems necessary to comply with the requirements of the tax system. The reality is that many small businesses are outside the income tax net either because they generate small profits or because they are overwhelmed by the tax system itself.
No tax relief for hedge funds?
Author: Magda Snyckers (ENSafrica) With effect from 1 April 2015, the business of a hedge fund has been declared to be a collective investment scheme (“CIS”) in terms of section 63 of the Collective Investment Schemes Control Act 45 of 2000 (“CISCA”). Accordingly, hedge funds are now subject to and regulated by certain prescribed provisions of CISCA. As a result, a person that conducts the business of a hedge fund must, within 6 months from 1 April 2015, lodge with the registrar of the Financial Services Board an application for registration as a manager to operate a hedge fund in accordance with section 42 of CISCA. Hedge funds typically constitute en commandite partnerships or trusts and a substantial amount of the investors into such hedge funds constitute tax exempt institutions.
New tax changes mean new tax schemes
Consumers and businesses by now have had a few months to assess the impact of tax changes indicated by the Finance Minister in his most recent Budget Speech. “Be wary though that with these changes also come charlatans who pounce on uninformed business owners and individuals with offers ranging from sophisticated tax avoidance schemes to offers of products or services to ensure compliance,” warns BDO Pretoria Consultant and ex-Managing Partner, Roy Edge. “This is nothing new, we see it all the time where individuals or groups lure unsuspecting people into parting with hard-earned money by investing in new and creative tax schemes.”