SARS recently released Binding Private Ruling 187 (‘BPR’) which deals with the waiver of a loan that funded the acquisition of a mining operation as a going concern under an intra-group transaction, as contemplated in section 45 of the Income Tax Act (the ‘Act’). Parties to the proposed transaction were a company incorporated in and a resident of South Africa (the ‘Applicant’), and a second company incorporated in and a resident of South Africa (the ‘Co-Applicant’).
Author: Nyasha Musviba
Conversion of a PDO to a for-profit Company
In Binding Private Ruling 188 (‘BPR’) SARS recently dealt with the conversion of a tax exempt Public Benefit Organisation (‘PBO’) to a for-profit company. Parties to the proposed transaction were a company incorporated in a foreign country and limited by guarantee, which is registered in South Africa as an external company (the ‘Applicant’ or ‘Applicant PBO’) under section 23(1)(a) of the Companies Act, 2008, and a PBO under section 30 or the Income Tax Act (‘the Act’). Section 30 governs PBOs in the Act.
Deemed loans under transfer pricing seen as a dividend declared on 1 January 2015
South African taxpayers who made a transfer pricing adjustment in previous years of assessment will be required to pay dividend tax at the end of 28 February 2015. Under the old transfer pricing rules, a primary transfer pricing adjustment triggered a secondary adjustment in terms of a deemed loan in the hands of the relevant South African taxpayer; i.e. the amount “over paid” or “under charged” to the relevant non-resident connected person was deemed to be a loan to that foreign-connected person, on which arm’s length interest was deemed to have accrued to the South African resident. The new section 31 of the Income Tax Act, applicable from 1 January 2015, now provides that the deemed loan plus accrued interest – to the extent that these items were not “re-paid” by the non-resident before 1 January 2015 – must be deemed to be a dividend in specie that was declared and paid by Read More …
Understatement penalties: where is the prejudice to SARS?
Authors: Seelan Moonsamy and Nada Kakaza of ENSafrica The understatement penalty (“USP”) regime introduced by the South African Revenue Service (“SARS”) in terms of the Tax Administration Act, No 28 of 2011 (the “TAA”), which is still in its infancy stages, has led to some uncertainty as to when an USP should, veritably, be levied by SARS. An “understatement” is defined in section 221 of the TAA to mean “any prejudice to SARS or the fiscus as a result of – a default in rendering a return; an omission from a return; an incorrect statement in a return; or if no return is required, the failure to pay the correct amount of ‘tax’.”
Requests for relevant material: a delicate balance between SARS’ powers and taxpayers' rights
Author: Jerome Brink of ENSafrica The world economy is still in a fragile state and battling to gain momentum as many developed countries continue to feel the after-effects of the global financial crisis and several developing nations continue to grapple with inherent inefficiencies. South Africa is no different, with The South African Reserve Bank’s forecast growth outlook for 2015 being revised down from 2.5 per cent to 2.2 per cent, and that for 2016 from 2.9 per cent to 2.4 per cent. Concomitant to this is the 2012 figures from the World Bank, which ranks South Africa as having the ninth highest tax: GDP ratio at 26.5% of GDP. Notwithstanding the further domestic issues such as corruption and wasteful expenditure, it is clear that SARS is coming under increasing pressure to collect more revenue to fund government spending. With this increased pressure comes the propensity for SARS to perhaps utilise Read More …
The introduction of withholding tax on interest – when is interest due and payable?
Author: Nicolette Smit and Chris de Bruyn With effect from 1 March 2015, withholding tax on interest will be levied at a rate of 15% in respect of interest that is paid by any person to or for the benefit of any foreign person, to the extent that the interest is regarded as having been received or accrued from a South African source. For purposes of the withholding tax, interest will be deemed to be paid on the earlier of the date on which the interest is paid or becomes due and payable. The phrase ‘due and payable’ is not defined in the Income Tax Act 58 of 1962 (“the Act”) nor does the Explanatory Memorandum issued by the South African Revenue Service (“SARS”) in respect of the Taxation Laws Amendment Bill of 2013 (which was promulgated as the Taxation Laws Amendment Act, 43 of 2014) provide any guidance in Read More …
Imminent changes to transfer pricing documentation requirements in South Africa
Author: Arnaaz Camay On 17 July 2013 the Minister of Finance appointed a tax review committee, headed by Judge Dennis Davis (the “Davis Committee”) to make recommendations for possible tax reforms in South Africa (“SA”). The Davis Committee was required to take into account recent international developments and, in particular, to address concerns about base erosion and profit shifting (“BEPS”) which was identified as a risk to tax revenues, tax sovereignty and the tax fairness of countries by the Organisation for Economic Co-operation and Development (“OECD”) in its report published on 12 February 2013. A 15-point Action Plan was developed by the OECD to address BEPS and to ensure that profits are taxed where the economic activities generating the profits are performed and where value is created. The purpose of the OECD ‘Action Plan 13: Re-examine Transfer Pricing Documentation’ was to re-assess transfer pricing documentation requirements with the purpose of Read More …
A recap of the REIT provisions and the latest amendments thereto
Author: Toinette Beckert The provisions in the Income Tax Act No. 58 of 1962 (“the Act”) pertaining to the taxation of Real Estate Investment Trusts (“REITs”) are contained in section 25BB and were introduced into the Act with effect from 1 April 2013. Deduction of “qualifying distributions” A REIT is a resident company which shares are listed on an exchange as shares in a REIT (as defined in the JSE Listings Requirements). Essentially, section 25BB allows for a “qualifying distribution” to be made by a REIT or a controlled company (a company that is a subsidiary of a REIT) for which the REIT or controlled company (that is a resident) gets a deduction from its income for the year of assessment to which that qualifying distribution relates.
Temporary rental of units – Extension of cut-off date
Where developers are unable to sell their units and decide to find a tenant to temporarily let the property in order to earn rental income, they were previously required to account for VAT on the market value of the property, as the change in use of the property from making taxable supplies to exempt supplies, resulted in a deemed supply. Specifically, when a developer temporarily changed the use of properties held for resale (taxable supplies) by letting them as dwellings to tenants (exempt supplies), s18(1) of the Value-Added Tax Act, No 89 of 1991 (VAT Act) provided for a change in use adjustment and the developer was obliged to pay VAT on the deemed supply of the property as at the date that it was applied for exempt purposes.
VAT – Confusion regarding interpretation
In this matter, a registered vendor for purposes of Value-added Tax (VAT), made certain supplies to an entity, C, entailing the rectification and rehabilitation, as well as the construction of new, low-cost housing. The vendor levied VAT at the standard rate of 14% in respect of the supplies, received payment from C, and paid the VAT to the South African Revenue Service (SARS).