Author: Mark Bovey (PwC) A discussion of the interpretational issues that may arise when a taxpayer needs to prove behaviour under the Voluntary Disclosure Programme On 1 October 2012, SARS launched a Voluntary Disclosure Programme under the provisions of sections 225 to 233 of the Tax Administration Act, No. 28 of 2011, as amended (“the TAA”). The main aim of the Programme is to encourage taxpayers to disclose, on a voluntary basis, previous non-compliance which may have prejudiced SARS, without the fear of understatement and other administrative penalties.
Author: Nyasha Musviba
Acquisition of shares using interest-bearing funding – refinements to section 24O
Authors: Denny da Silva and Elandre Brandt (Webber Wentzel) Section 24O was introduced in 2012 as an alternative to so-called “debt push-down structures”. The provision allows a company to claim a deduction for interest incurred on debt used to acquire shares in a company, under qualifying circumstances (subject to certain interest deduction limitation provisions in the Income Tax Act). Under current law, the interest deduction is allowed where a company acquires equity shares in another company that is an operating company (being a company that carries on business continuously and in the course or furtherance of that business provides goods or services for consideration) or a company that holds more than 70% of the shares of an operating company, and that acquiring company becomes the controlling group company of the acquired company at the end of the day of the transaction.
Amendments to CFC Diversionary Income Rules
Authors: Leani Nortje and Nola Brown (Webber Wentzel) Section 9D currently provides for diversionary income rules which seek to impute into the income of South African residents, service income derived from the performance of services by a CFC to a connected South African resident, and certain sales income derived by CFCs in relation to those residents, from the sales of goods that were sourced by the CFCs from connected parties in South Africa (so-called “CFC inbound sales”). The inbound sales rule does not apply where the CFC is located in a high tax jurisdiction,or the income from the sale of goods is attributable to the activities of a permanent establishment of the CFC. Prior to 1 April 2012, however, the exemptions to the diversionary income rules in relation to CFC inbound sales were substantially broader, in that an exemption existed if:
Taxation of trusts revisited
Author: Hanneke Farrand (ENSafrica) The Davis Tax Committee’s First Interim Report on Estate Duty (“DTC Report”) was released for public comment on 13 July 2015. In essence, the DTC Report proposes that “a highly progressive tax that patches loopholes, helps provide equality of opportunity and reduces the concentration of wealth, must be implemented”. The DTC Report was released in draft and is, therefore, open to comment. Following from this, it is clear that the recommendations in the DTC Report will not necessarily find their way into draft tax legislation. South Africa has well established rules and case law dealing with the taxation of trusts. The South African Revenue Service (“SARS”) recently introduced new tax returns for trusts that require far more detailed disclosures by taxpayers in accordance with these principles.
Proposed amendment to anti-avoidance rule in respect of asset-for-share transactions
Author: Heinrich Louw (DLA Cliffe Dekker Hofmeyr) Section 42 of the Income Tax Act, No 58 of 1962 (Act) provides for tax roll-over relief in respect of asset-for-share transactions as defined. Such a transaction generally entails the disposal by a person of an asset to a company, and the issue by that company of new shares to the person as consideration. One of the requirements is that the nature of the asset must be retained. In other words, if the person held the asset as trading stock, the company must acquire it as trading stock, and if the person held it as a capital asset, the company must acquire it as a capital asset. If the person held the assets as a capital asset, the company may acquire it as a capital asset if the person (where the person is a company) and the company do not form part of Read More …
Permanent establishment – a South African perspective
In cases where South Africa has concluded an agreement with another country for the avoidance of double taxation, a critical issue is the circumstances under which the business profits of a person who is a resident of that country may be taxed in the Republic. The right to tax is linked to whether the activities of that person give rise to a permanent establishment (PE). Where a permanent establishment is found to have been created, South Africa may tax the income attributable to that permanent establishment. Every double-taxation agreement (DTA) contains an article in which the term “permanent establishment” is defined. The definition commences with a basic statement of principle:
Supreme Court of Appeal unconvinced by van der Merwe story
The Supreme Court of Appeal was approached to set aside a preservation order that had been granted in the Cape High Court. The appellant’s conduct in prosecuting the appeal was dilatory and the Court showed its displeasure. Non-compliance with legal processes and time limits in an appeal came to the fore in the recent litigation between SARS and Ms Candice-Jean van der Merwe. The latest judgment in this litigious saga involved an application by Ms van der Merwe to the Supreme Court of Appeal for condonation (a pardoning by the court) of her failure to timeously proceed with her appeal against a preservation order that had earlier been granted in favour of SARS by the Cape High Court in respect of certain of her assets.
‘Tax havens will chase out non-compliant taxpayers’ – As global efforts to close loopholes intensify.
Author: Ingé Lamprecht (Moneyweb) JOHANNESBURG – South Africans with unauthorised funds abroad better get their affairs in order because tighter regulation in tax havens will soon become a reality, a tax expert has warned. Speaking at a recent seminar hosted by The Wealth Corporation, Tony Davey, director at boutique consulting firm Tony Davey and Associates, said South Africans with offshore funds (foreign inheritances, foreign earnings pre-1998 or “schlep” funds like unspent travel allowances) that weren’t externalised in line with the R10 million offshore investment allowance or R1 million foreign discretionary allowance permitted by the South African Reserve Bank (Sarb) may soon bear the brunt of closer scrutiny.
Tax-free savings: Give it time
Author: Maarten Mittner (Financial Mail) The recently introduced tax-free savings accounts have received their share of criticism. However, industry experts say the benefits exceed the negative aspects, especially for younger investors. Individuals can choose from different types of investment funds from various financial service providers. One of the major criticisms of the products has been that the tax-free investment amount set for individuals is too low. A maximum of R30 000/year and up to R500 000 over a lifetime in capital gains, dividends, interest earned or on withdrawals from these accounts is nontaxable.
The Global Forum releases new compliance ratings on tax transparency
Author: OECD The Global Forum on Transparency and Exchange of Information for Tax Purposes published new peer review reports today for 12 countries or jurisdictions, moving further ahead with its goal to implement global standards on transparency and exchange of information for tax purposes. Phase 1 reports on , , , , , and assessed their legal and regulatory frameworks for transparency and exchange of information on request. These countries were assessed to have legal frameworks in place to enable them to move to the next stage of the review process, which will assess exchange of information practices.