SA Budget 2023 – Does your controlled foreign company have real substance?

An offshore company which meets the definition of a controlled foreign company (CFC) will have substance if it has a foreign business establishment (FBE) as contemplated. Usually, if the income of your CFC is attributable to an FBE, such income will not be taxed in the South African shareholders hands. Conversely if there is no FBE such income may be taxed in the SA shareholders hands. Earlier this month the Supreme Court of Appeal delivered its judgement in CSARS v Coronation Investment Management on whether the CFC in question had an FBE. The court ruled in favour of SARS.

Tax considerations for disposing and acquiring of loan accounts owing by connected persons at a price less than base cost or face value

It is not uncommon for loan accounts owing by a company (debtor company) to a shareholder (creditor) to be sold by the creditor together with the shares in the debtor company. So too may creditors be tempted to dispose of a loan owed by the debtor company in circumstances where the debtor company cant service it because of the prevailing economic downturn. In these instances, the market value of the loan may be invariably less than the face value and also the base cost; and, as such, may be sold at a discount to face value resulting in a capital loss. Where the debtor company is a connected person as defined in section 1(1) of the Income Tax Act, 1962 (as amended) (ITA) in relation to the creditor and the loan is sold at a price less than the base cost of the loan (and assuming the base cost is Read More …

Avoid future headaches: raising all grounds of objection is critical in SARS tax disputes

In recent years, SARS has become increasingly litigious, resulting in disputes often ending up in the Tax Court or the High Court. Such a dispute will generally arise when a taxpayer disagrees with an assessment raised by SARS. An aspect of the dispute process that can have dire consequences if overlooked is that a taxpayer must canvas all relevant grounds of objection from the outset, as these form the basis of any future litigation. A case in point isCommissioner for the South African Revenue Service v Airports Company for South Africa.In this case, SARS raised an additional assessment for the taxpayers 2011 year of assessment, disallowing deductions of Corporate Social Investment (CSI) expenditure and allowances in terms of section 13quinand 12F of the Income Tax Act,1962 (the ITA). The taxpayer only objected to the disallowance of the CSI expenditure. No objection was lodged to section 13quin and section 12F allowances Read More …

Who is liable when a payment is made in terms of an invoice that has been intercepted and altered?

Author: Roxanne Webster and Merrick Steenkamp. Gone are the days of receiving physical invoices. Most, if not all, invoices are now sent electronically. While this may be faster and seemingly more secure, there are still some risks involved. What happens if either the creditors or the debtors email accounts are hacked? What if the banking details on the invoice are changed without either partys knowledge and payment is made? Who is liable in such a scenario?

The end of NRV for closing stock (or not?)

Author: Joon Chong, a Partner at Webber Wentzel. The Supreme Court of Appeal (SCA) has for the second time in CSARS v Atlas Copco South Africa (Pty) Ltd, confirmed that the net realisable value (NRV) method is not a suitable method to value closing stock for income tax purposes. The SCA referred with approval to its earlier decision of CSARS v Volkswagen South Africa (Pty) Ltd and held that the NRV method is forward looking, taking into account estimated costs which would still need to be incurred before the stock is sold. The Income Tax Act 58 of 1962 (Act), and calculation of taxable income, is backward looking. The reduction from the cost price of the closing stock should only be allowed in two circumstances: (i) when an event that caused the value of the trading stock to diminish occurred in the tax year; and (ii) when the taxpayer knows Read More …

A creature of statute: A decision about the Tax Courts power to increase understatement penalties

Authors: Louise Kotze and Louis Botha. In the recent judgment of Purlish Holdings (Proprietary) Limited v The Commissioner for the South African Revenue Service (76/18) [2019] ZASCA 04, the Supreme Court of Appeal (SCA) had to pronounce on the South African Revenue Services (SARS) entitlement to impose understatement penalties on Purlish Holdings (Proprietary) Limited (Taxpayer) and the quantum thereof.

The Tax Dos and Donts of SBCs

Author: Esther van Schalkwyk , BDO Tax Manager. A Small Business Corporation (or SBC) may qualify for favourable tax treatment if it meets certain requirements in the Income Tax Act (ITA). The benefits, requirements, and common pitfalls are summarised below. Benefits Companies (including close corporations) are generally subject to a flat rate income tax of 28%. SBCs are subject to more favourable tax rates on taxable income up to R550 000. The SBC tax rates for financial years ending between 1 April 2018 and 31 March 2019 are:

SA Budget 2019/20 – Controlled foreign company comparable tax threshold to be decreased

The Budget noted a global downward trend in corporate taxation rates. This downward trend may lead to an unintended increase in the imputation of the net income of controlled foreign companies (CFCs) in South African shareholders taxable income. This is despite the fact that at the inception, the CFC may have operated in a jurisdiction with rates of tax which would have met the present threshold contained in paragraph (i) of the proviso to s9D(2A)(l) of the IT Act.

Finality to Debt Benefit Rules

Author: Siyanda Gaetsew. The Taxation Laws Amendment Act, 2018 (TLAA), which was promulgated on 17 January 2018, amended South African tax legislation by overhauling two provisions relating to the reduction of debt, (the Debt Benefit Rules), namely section 19 of the Income Tax Act, 1962 (the ITA) and paragraph 12A of the Eighth Schedule to the ITA (the Eighth Schedule). This article will examine the notable areas where the legislation per the TLAA differs and the importance of the timing of the application of such amendments.

The capital v revenue question in the context of government grants: The SCA decides in favour of the motor manufacturing industry

Author: Louis Botha and Louise Kotze. In the recent case of Volkswagen South Africa (Pty) Ltd v Commissioner for South African Revenue Service 80 SATC 179, the age-old question of whether a receipt is capital or revenue in nature was addressed by the Supreme Court of Appeal (SCA), in the context of government grants paid to motor vehicle manufacturers.