Author: Michael Reifarth (Tax Executive at ENSAfrica) The number of provisions contained in the Income Tax Act, 58 of 1962 (“the Act”) which deal with tax treatment of interest income and interest expenditure have gradually increased over time. There are numerous aspects to be borne in mind by resident and foreign companies when considering the income tax and withholding tax implications which may arise in respect of transactions giving rise to interest income and interest expenditure. This article serves as an outline of certain provisions which should be given consideration when assessing the tax impact which interest income or expenditure may have on the position of a company.
Author: Nyasha Musviba
VAT status of payments to welfare organisations clarified by the High Court
Author: Gerhard Badenhorst (Tax Executive at ENSAfrica) The SA Red Cross Air Mercy Service Trust (“the Trust”) approached the High Court for a declaratory order regarding the value added tax (“VAT”) status of payments it receives from the health departments of provincial governments to provide air rescue services as and when required. In its judgment delivered on 6 May 2015, the High Court found in favour of the Trust that the payments qualify for VAT at the rate of zero per cent. It was common cause that the Trust is a welfare organization and that its activities constitute welfare activities, being the rescue or care of persons in distress.
Which taxes apply to share loans?
Author: Magda Snyckers (Tax Director at ENSAfrica) The ability to enter into loans over listed shares is an important part of the financial industry as it offers sellers of listed shares the ability to comply with their obligations to deliver shares under a short sale contract. This ability could ensure that the sale of listed shares do not result in failed trades, provided the relevant shares can be sourced and borrowed prior to the seller having to deliver the shares. The intended change by the JSE limited to move to from a T+ 5 to a T + 3 settlement date in order to align with its settlement period with the international norm, reinforces the importance of the share lending industry. As a result of the shorter settlement period, the ability to borrow shares to settle trades will be paramount to ensure as little failed trades as possible.
Reportable arrangements specifically extended to foreign trust structures
On 16 March 2015, the Commissioner for the South African Revenue Service (SARS) published Government Notice No. 212 in terms of s35(2) and s36(4) of the Tax Administration Act No, 28 of 2011 (TAA) specifically listing certain arrangements as so-called reportable arrangements (Notice). These listed arrangements are in addition to the arrangements that are already listed in s35(1) of the TAA. The effect of an arrangement being regarded as a reportable arrangement for purposes of s35 of the TAA read with the Notice is that,
Binding Ruling – SARS ruling on preference share transaction
Binding Private Ruling No 191 (Ruling) was released by the South African Revenue Service (SARS) on 26 March 2015. The Ruling relates to the refinancing of debt through means of preference share funding. Having regard to the terms and conditions of the preference shares and the proposed cash-flows of the transaction, the applicant sought a ruling confirming that: the preference shares to be issued would not constitute ‘hybrid-equity instruments’ and ‘third-party backed shares’, as respectively defined in s8E(1) and s8EA(1) of the Income Tax Act, No 58 of 1962 (Act);
Snapshot of new withholding tax on interest (WTI) – Are you liable?
Author: Ilsa Groenewald, Associate Director : Tax, BDO Durban Johannesburg, 18 May 2015 – High net worth individuals who hold local and foreign investments may not be aware of the new withholding tax on interest (WTI) introduced by SARS. WTI is a tax charged on interest paid on or after 1 March 2015 by any person to or for the benefit of a foreigner from a source within South Africa.
Tax Administration – Tax compliance status
Tax clearance certificates (TCCs) are issued by the South African Revenue Service (SARS) to, inter alia, validate the status of a taxpayer and confirm that such taxpayer’s tax affairs are in order. TCCs are, almost without exception, required for tender or bid applications, to reflect good standing, foreign investment and for emigration purposes. A TCC is only valid for one year from the date of issue in respect of a tender and/or good standing, provided the taxpayer remains compliant with SARS requirements.
Tax Administration – Interpreting statutory provisions
SARS has investigated, and in many cases raised assessments in respect of, share incentive schemes where the employee had accepted an offer to purchase shares at a fixed price prior to 26 October 2004, subject to delivery and payment taking place at a future date. The law relating to these schemes (known as deferred delivery schemes or DDS schemes) was amended with effect from that date. The Supreme Court of Appeal has now delivered its judgment in the matter of C: SARS v Bosch [2014] ZASCA 171 (19 November 2014) and provided clear guidance on the application of the Income Tax Act No. 58 of 1962 (the Act) in relation to deferred delivery share incentive schemes, where the employee had exercised the right to acquire the shares prior to 26 October 2004.
International Tax – Treaty shopping
The concept of base erosion and profit shifting (BEPS) has been much discussed at various international forums including the G20 Finance Ministers and Central Bank Governors meeting in July 2013 in Moscow as well as the G20 Heads of State meeting in September 2013. From a South African perspective, the Davis Tax Committee has been set up, inter alia, in order to address the issue of BEPS in a South African context.
Withholding taxes – Overview of current taxes
Over the past few years we have seen the introduction of various withholding taxes to the South African tax system. We set out below a high-level summary of the various withholding taxes that are levied in terms of the Income Tax Act No. 58 of 1962 (the Act), their rates and the withholding and reporting obligations. Apart from the dividends tax, these withholding taxes primarily apply to persons that constitute non-residents for South African tax purposes. However, tax residents should also take note since they could have a withholding obligation which may result in them having a secondary tax liability.