Author: Heinrich Louw (Senior Tax Associate – Cliffe Dekker Hofmeyr) The South African Revenue Service (SARS) released Binding Private Ruling, No 206 (Ruling) on 14 September 2015. The Ruling dealt with the disposal by a share block company of sectional title units to its share block holders. A resident company (Applicant), and a resident trust (Trust), held shares in a resident share block company (Share Block Company). The Share Block Company owned three sectional title units.
Author: Nyasha Musviba
The definition of ‘controlled group company’ and ‘equity share’
Author: Heinrich Louw (Senior Tax Associate – Cliffe Dekker Hofmeyr) The South African Revenue Service (SARS) released Binding Private Ruling No, 205 (Ruling) on 11 September 2015. The Ruling considers the meaning of ‘controlled group company’ and ‘equity share’. An approved venture capital company (VCC) in terms of s12J of the Income Tax Act, No 58 of 1962 (Act), resident company A (Company A), and resident company B (Company B), proposed to incorporate a new company (RentalCo).
Validity of attachment of shares to found or confirm jurisdiction
Author: Mareli Treurnicht (Senior Associate at Clifee Dekker Hofmeyr) The South African common law, read with the Superior Courts Act, No 10 of 2013 (the Superior Courts Act), provides for the rules pertaining to the attachment to either found or confirm jurisdiction in South Africa. The attachment of property to found or confirm jurisdiction is regarded as an extraordinary remedy and, according to case law, should be granted with caution. Section 28 of the Superior Courts Act further prohibits the attachment of property against a person who is a resident in South Africa in order to found jurisdiction. However, the common law provides for the attachment of the property of a person who is not a resident, whether such property is immovable, movable or incorporeal (such as shares).
Energy sector license and consent charges: capital or revenue?
Recently two interesting cases were reported in New Zealand and Australia. The cases related to whether certain expenses incurred by taxpayers in the energy sector were deductible for purposes of income tax. In those countries – like in South Africa – taxpayers may generally not deduct costs of a capital nature for purposes of income tax. In the case of Commissioner of Inland Revenue v Trustpower Ltd [2015] NZCA 253 the taxpayer (Trustpower) generated and sold electricity. The taxpayer was developing new projects. In that process it incurred expenses in applying for and obtaining consents under the Resource Management Act 1991. The consents related to land use, water and discharge.
Exchange control: Constitutional Court ruling on SARB 10% exit charge to Shuttleworth
During a budget speech in 2003, the Minister of Finance imposed what was termed a 10% exit charge on monies leaving the country in excess of R750 000. In 2009, Mr Shuttleworth applied to the South African Reserve Bank (“the SARB”) for permission to transfer approximately R2.5 billion out of South Africa. The SARB granted Mr Shuttleworth permission to transfer this amount on condition that he paid the exit charge. Mr Shuttleworth paid the charge of approximately R250 million. He was later advised that the exit charge was a tax and had been imposed in a manner not permitted by the Constitution or the applicable statute.
Buying back shares from shareholders: dividends tax liability
Many issues arise when a company enters into an agreement to buy-back shares from its shareholders. If a company enters into an agreement with a particular shareholder to buy-back a certain number of ordinary shares, whereby the shares will be returned and cancelled on the effective date of the agreement, but the payment for the buy-back will be made in instalments over several years. This raises the issue of when liability to pay dividends tax will arise? Section 1 of the Income Tax Act No. 58 of 1962 (the “Act”) defines a “dividend” as inter alia: “Any amount transferred or applied by a company that is a resident for the benefit or on behalf of any person in respect of any share in that company, whether that amount is transferred or applied…as consideration for the acquisition of any share in that company…”
Proposed updates to the existing customs legislation
The major talking point within the South African Customs environment was the recent promulgation of the Customs Control Act, 2014 and Customs Duty Act, 2014 (“the Acts”) by parliament. There remains a lot of work outstanding before the Acts can be fully implemented and SARS are currently conducting extensive work surrounding the drafting of the Rules to the Acts and have published several batches for comment. The first phase of implementation is expected to “go live” in 2016 and will deal with Registration and Licensing. In terms of Section 931 and 933 of the Customs Control Act, an existing customs license and registration lapses 30 days after the “effective date”, unless the holder of that registration before the expiry thereof has submitted an application to the customs authority for a new registration. If the holder of the customs registration or license applies for a new license before the expiry, then the existing registration and license will continue until dispensed with. The “effective Read More …
Permanent establishments in South Africa
Recently, the Tax Court handed down judgment in the unreported case of AB LLC and BD Holdings LLC v the Commissioner of SARS (heard in February 2015) in which it had to determine whether or not an American company acting as an advisory group for the South African airline industry, had created a permanent establishment in South Africa. In making it’s decision, the court reviewed the Double Taxation Agreement (“DTA”) concluded between South Africa and the USA. A permanent establishment is created in terms of a double taxation agreement and outlines the activities that an enterprise of a resident state must conduct in a source state before the profits generated from those activities can be taxed in the source state. According to Section 5(1) of the Double Tax Agreement (and the Organisation for Economic Co-operation and Development Model Tax Convention), the term “permanent establishment” means:
Proposed repeal of the VAT zero rating under the National Housing Programme
In terms of section 11(2)(s) of the Value Added Tax Act No. 89 of 1991 (the “VAT Act”), payment made to vendors in respect of services supplied to a public authority or municipality, under a National Housing Programme, is subject to VAT at the rate of zero percent. In the Explanatory Memorandum to the draft Taxation Law Amendment Bill of 2015 (the “Draft Bill”), it is proposed that, due to administrative complexities relating to the implementation of section 11(2)(s) of the VAT Act, the zero rating provision will be abolished with effect from 1 April 2017.
Ex parte preservation orders: Krok v CSARS
This case was an appeal from the Gauteng Division of the High Court to the Supreme Court of Appeal (“SCA”) pertaining to the correctness of the granting of an ex parte preservation order applicationthat was brought against Mr Krok by the Commissioner of the South African Revenue Service (“SARS”) in terms of sections 163 and 185 of the Tax Administration Act No. 28 of 2011 (the “TAA”). The Court had to determine the question having regard to the application of the Double Taxation Agreement (“DTA” – as amended by a protocol) between South Africa and Australia.The DTA provided for the mutual assistance between the two jurisdictions for the collection of taxes.