Author: Bruce Russell, tax consultant Grant Thornton Cape South African resident taxpayers performing advisory or other technical services within South Africa to clients abroad, may be subject to foreign withholding taxes. To reduce the risk of this income being subjected to double taxation, it is necessary to consider the source of this income. The source of services income South African courts have interpreted the concept of source in applying the Income Tax Act. Source in this context is not a legal concept, but rather something a reasonable man would regard as the real source of income.
Author: Nyasha Musviba
Interpretation of written agreements
Shakawa Hunting & Game Lodge (Pty) Ltd v Askari Adventures CC (44/2014) [2015] ZASCA 62 (17 April 2015) is a recent judgment by the Supreme Court of Appeal concerning the interpretation of a written agreement. The court (per Mpati P) said that what the parties and their witnesses ex post facto think or believe regarding the meaning to be attached to the clauses of the agreement, and thus what their intention was, is of no assistance in the exercise. The court referred to its earlier judgment in Natal Joint Municipal Pension Fund v Endumeni Municipality 2012 (4) SA 593; [2012] ZASCA 13 (SCA) where Wallis JA said the following with regard to the construction of a document:
Shuttleworth’s exit charge was valid and did not constitute a tax
In an about-turn the Constitutional Court handed down judgment in the Shuttleworth matter on 18 June 2015. Not only was it found that Shuttleworth’s exit charge constituted a regulatory charge as opposed to a tax, but it was also found that the Exchange Control Regulations were not unconstitutional. Should one consider the history of the matter, Shuttleworth made application to the South African Reserve Bank (Reserve Bank) to transfer approximately R2,5 billion out of South Africa. This approval was granted subject to an exit charge of 10% being imposed on the capital that was exported. The payment of this exit charge was challenged by Shuttleworth:
VAT clauses in sale agreements relating to immovable property
Parties to sale agreements of immovable property should take great care when drafting the value-added tax (VAT) clauses. Consider the recent case of Lezmin 2358 CC v Tomeridian Properties CC and others [2015] JOL 33210 [GJ]. The facts of the case are complex. Put simply, the seller sold commercial immovable property to the buyer. The sale agreement, which went through a few permutations, stated that:
VAT – Input tax and tax invoices
An attack by SARS backfired in an appeal in the Western Cape High Court when the Court delivered its judgment in South Atlantic Jazz Festival (Pty) Ltd v Commissioner for the South African Revenue Service [2015] ZAWCHC 8 (judgment delivered on 6 February 2015). The facts The appellant, a registered VAT vendor, had, for a number of years, been the organiser of an international jazz festival. In order to finance and facilitate the holding of the festival, it sought sponsorships from large enterprises. The enterprises undertook to provide cash, goods or services to an agreed value, in consideration for which they were given preferential advertising and branding rights. In the matter before the Court, the enterprises concerned were South African Airways, the City of Cape Town, Telkom and the South African Broadcasting Corporation.
Global tax surveillance
Even George Orwell, with his prophetic satirical insight, would have been confounded by the level of domestic and global surveillance that characterises our lives today. Indeed, given the objectives of the Organisation for Economic Development and Cooperation (OECD) Base Erosion and Profit Shifting (BEPS) Action Plan – to combat international tax avoidance by multinational enterprises (MNEs) and to secure government revenues – surveillance in the form of the inter-jurisdictional exchange of information and administrative assistance for tax collection purposes is not only justifiable but indispensable. Nonetheless, it behoves taxpayers to be alert to the rapidly expanding web of tax surveillance in which they operate.
Invalid assessments are subject to objection and appeal
Judgment was delivered by the Supreme Court of Appeal (SCA) in the case of Medox Limited v Commissioner for the South African Revenue Service on 27 May 2015. While under provisional liquidation, Medox Limited (Taxpayer) incurred an assessed loss during its 1996 year of assessment. The Taxpayer failed to submit a return for the 1997 year of assessment. In its returns for the 1998 and subsequent tax years, it neglected to carry forward the assessed loss from 1996.
Transfer pricing adjustments and withholding tax on interest
The South African Revenue Service (SARS) released Binding Private Ruling 192 (Ruling) on 28 May 2015, which dealt with withholding tax on interest and cross-border interest-free loans. The applicant was a non-resident and did not have a permanent establishment in South Africa. The co-applicant was a resident South African company, and a connected person in relation to the applicant. The applicant and co-applicant intended to enter into a loan agreement in terms of which the foreign applicant would advance money to the local co-applicant. The loan would be interest-free, unsecured, and payable on demand.
In trusts we trust
As parties to litigation, creditors often find themselves in a predicament where the individual they have a claim against has assets of insignificant value. The same individual may, however, be a trustee of a discretionary trust owning substantial assets. Faced with this difficulty, creditors are left with little choice but to ask a court to ‘go behind the trust’ in an attempt to find assets to execute judgment against. Allegations of a trust being a debtor’s ‘alter ego’ or ‘a sham’ often find their way into pleadings and the terms are frequently used interchangeably. To date, our courts have mostly shied away from declaring assets registered in a trust to be regarded as assets falling within the personal estate of one of the trust’s trustees. The recent judgment of Van Zyl and Another Nno V Kaye No and Others 2014 (4) Sa 452 (WCC) confirms this reluctance.
Interpretation of on demand guarantees
In the past, our courts have called payment guarantees issued by banks in commercial deals ‘the life blood of commerce’ which should not lightly be subjected to judicial interference. The Supreme Court of Appeal recently confirmed this principle in the case of the State Bank of India and Another v Denel SOC Limited and Others (947/13) [2014] ZASCA 212 but also emphasised that a demand made pursuant to a payment guarantee (which is independent of the underlying contract and is similar to an irrevocable letter of credit), must comply strictly with the terms and requirements set out in such guarantee. In the case, the Supreme Court of Appeal was asked to set aside an interdict granted by the South Gauteng High Court prohibiting Absa Bank from honouring its undertaking to pay on eight counter guarantees issued by Absa Bank in favour of the State Bank of India and the Bank Read More …