Author: Amanda Visser (BDlive) Withholding taxes are giving rise to a vicious circle in Africa. As governments introduce higher and more withholding taxes on an ever-increasing range of services in an effort to protect their tax base, companies are developing complex structures to try to lower their tax liabilities. Ultimately the result is that doing business in Africa is becoming more expensive. Governments require local businesses that pay foreign multinational companies for interest, dividends, royalties, service fees and even the sale of real estate, to withhold a certain percentage of the payments and transfer that amount to the fiscus. The withholding taxes differ from country to country, and the rates fluctuate from 5% to 30%.
Category: Corporate Tax
Legal professional privilege and invoices from attorneys
Author: Heinrich Louw (DLA Cliff Dekker Hofmeyer) On 17 March 2014 judgment was handed down in the Western Cape High Court in the case of A Company v Commissioner of the South African Revenue Service (case no 16360/2013 – as yet unreported). The facts were briefly as follows. The applicants were three companies in a group of companies. In the course of conducting an audit in the applicants’ tax affairs, the South African Revenue Service (SARS) directed a request for relevant material at the applicants in terms of s46 of the Tax Administration Act, No 28 of 2011.
On the money: Let tax-free savers profit from stocks
Author: Stuart Theobald (BDlive) The Treasury is busy missing an ideal opportunity to encourage individuals to invest directly in shares listed on the stock market. It apparently thinks that this would be a bad thing. It is wrong. South Africans are useless at saving. Only 42% of adults have any savings at all, the rest preferring to spend as they get it or borrow to consume. We have become addicted to consumption. Over 60% of our gross domestic product is made up of final consumption expenditure.
Buy-back of shares at a purchase price in excess of their market value
Author: Andrew Lewis (DLA Cliff Dekker Hofmeyer) An interesting advance tax ruling was released by the South African Revenue Service (SARS) on 12 March 2014. Binding Private Ruling 164 (Ruling) deals with the buy-back of ordinary shares by a company at an amount in excess of the market value of the shares. The facts of the proposed transaction are relatively simple. As part of a Broad-Based Black Economic Empowerment (B-BBEE) transaction, a company (BEECo) acquired 40% of the ordinary shares (shares) in a South African incorporated and resident company (applicant). The acquisition of the shares was financed by the BEECo through the issue of cumulative redeemable preference shares to various investors, the majority of which were financial institutions.
Re-financing and buy-back of shares
Author: Heinrich Louw (DLA Cliff Dekker Hofmeyer) The South African Revenue Service (SARS) released Binding Private Ruling 163 (Ruling) on 12 March 2014. The Ruling deals with the tax consequences of a transaction involving the re-financing of various loans and the application of the proceeds for purposes of a share buy-back. The facts are briefly as follows. Company X owns 49.3% of the issued shares of company Y. The balance of the issued shares of company Y are held by various individuals, companies, trustees of trusts and executors of deceased estates (other shareholders).
Companies face onerous foreign tax rules
Author: Amanda Visser (BDlive) The challenges developing countries face from tax avoidance and tax evasion are not new, yet developed countries have suddenly woken up to these challenges, mainly due to the global financial crisis. They call it base erosion and profit shifting, or Beps. The Organisation for Economic Co-operation and Development has over the past two years looked at ways to strengthen international tax standards, and ways to identify and address loopholes in tax laws. The danger is that the developing world will have to adopt new rules, made by the developed world for problems they have been struggling with for many years.
Deductions for income tax and VAT
Broadly speaking, in their ordinary business operations, certain entities are entitled to claim certain deductions for income tax and value-added tax (VAT) purposes. In this article we discuss the tests used by South African courts and in practice, for income tax and VAT purposes, in order to determine whether a taxpayer will be entitled to such deductions. Consideration will be given specifically to the deduction of legal expenses incurred by a taxpayer in terms of section 11(c) of the Income Tax Act No. 58 of 1962 (the Act) and the deduction of input tax in respect thereof in terms of section 1 read with section 7 of the Value-Added Tax Act No. 89 of 1991 (the VAT Act).
Deductions – Interest in re-organisations
Amongst the slew of amendments, was an amendment regulating the deductibility of interest incurred in respect of reorganisation transactions. The amendment will affect the structuring of reorganisation transactions, especially those that are debt funded, with significant consequences for the taxpayer. The history To understand these amendments, one has to go back a few years to June 2011 when section 45 of the Income Tax Act (the Act),
Corporate Taxation – A group of companies for corporate rules
The Income Tax Act No. 58 of 1962 (the Act) contains a definition of a ‘group of companies’ in section 1 of the Act. However, a narrower definition of the term ‘group of companies’ is contained in section 41 of the Act, which applies to certain corporate tax roll-over rules and other provisions contained in the Act. It is important to identify which companies fall within the different definitions of a ‘group of companies’ in order to determine whether one qualifies for the applicable tax relief.
Ruling on definition of 'listed shares'
The South African Revenue Service (SARS) released Binding Class Ruling 42 on February 7 2014. The factual circumstances in respect of which the ruling was made are as follows: Company Y is a company incorporated and resident in foreign country Y. Company X is a company incorporated and resident in country X. Company X is a wholly owned subsidiary of Company Y. Company X is to be listed on the JSE Limited. Company X’s business is investment in foreign debt instruments, on which it will receive interest returns. Company X intends to raise funds for its business by issuing certain preferred securities. The preferred securities will be issued through its branch in country Y. The preferred securities would: