Author: Ruaan van Eeden (Cliff Dekker Hofmeyer) The South African energy landscape has undergone significant changes over the last few years with the introduction of a number of private and public sector funded renewable energy projects, aimed at feeding power into the national grid and reducing reliance on coal-fired power stations for generating electricity. Further initiatives for energy efficiency (and not necessarily energy generation) have also been introduced to further assist taxpayers in reducing their energy footprint. The generation of electricity from renewable resources such as wind, solar, biomass or hydro is not only directed at feeding power into the national grid, but is also utilised by a wide array of corporate taxpayers for their own use.
Category: Corporate Tax
Value shifting arrangements still applicable to companies and triggering adverse tax implications
Author: Andre Lewis (Cliff Dekker Hofmeyer) The Eighth Schedule to the Income Tax Act, No 58 of 1962 (Act) contains particular anti-avoidance provisions dealing with so called value-shifting arrangements. The South African Revenue Service (SARS) Comprehensive Guide to Capital Gains Tax (Issue 4) (CGT Guide) indicates that value shifting involves the effective transfer of value from one entity to another without constituting an ordinary disposal for capital gains tax purposes. Without these specific provisions, the concern is that entities could manipulate the value of assets in order to obtain a capital gains tax benefit. In the Taxation Laws Amendment Act, 2012 (TLA 2012) a new s24BA of the Act was introduced to ensure that asset-for-share transactions take place for equal value.
Taxation on unrealised accounting profits
By Nico Theron, Senior Tax Consultant, Grant Thornton Johannesburg In South Africa, income tax is usually payable on actual receipts and accruals, but for every rule, there are always exceptions. One exception to this rule applies to companies that deal in instruments, interest rate agreements, or option contracts. The exception allows them, if they so choose, to pay tax on a market-valuation basis. This means, irrespective of actual receipts and accruals, the interest and amounts payable or receivable on option contracts and interest rate agreements are taken into account for tax purposes, according to changes in the market value of the underlying instruments over a period.
International Financial Reporting Standards (IFRS) tax implication – Part II
Construction contracts The current practice for determining contract revenue by FIRS shall be sustained. Only costs attributable to certified work done shall be allowed for tax purposes in line with provisions of CITA. Other incomes in the nature of incentive payments would be taxed accordingly. The expected loss recognized as an expense shall be disallowed until the loss is actually incurred. Interest received on advanced payment placed in an interest yielding account shall be treated as other income and be subjected to tax at the time it is earned. Retention income shall be subjected to tax at the time it is earned. Future cost shall not be allowable as expense for tax purposes IAS 12 – Income taxes Taxpayers shall furnish FIRS with all deferred tax disclosures as contained in the standard.
Ethical taxpaying: how does a company ascertain the “right amount of tax”?
Author: Matthew Hodkin – Norton Rose Fulbright LLP Tax has been much in the news recently. This is not the first time that tax has risen to the top of the political agenda but now public mood has shifted towards the idea that people should be paying more tax. Historically, tax has caused all manner of protests, uprisings and even wars but there has also previously been sustained public outcry that people just aren’t paying as much tax as they ought. This developing perception of tax as a moral or ethical obligation creates difficulty with which existing corporate processes are not always well-equipped to cope.
Tax Administration Act – Criminal investigation in relation to a serious tax offence
The Tax Administration Act, No. 28 of 2011 (the TAA) took effect on 1 October 2012. In light of SARS’s strong emphasis on compliance, this article considers the procedures SARS should follow where it believes that a serious tax offence might have been committed. A “serious tax offence” is defined as “a tax offence for which a person may be liable on conviction to imprisonment for a period exceeding two years without the option of a fine or to a fine exceeding the equivalent amount of a fine under the Adjustment of Fines Act, 1991 (Act No. 101 of 1991).”
Tax deductions – Expenditure on repairs
Interpretation Note 74(the Note), issued by SARS on 6 August 2013, is a collation of fundamental principles regarding the deductibility of expenditure on repairs (and the recoupment of such expenditure) in terms of section 11(d) of the Income Tax Act 58 of 1962 (the Act) and the principles, as laid down in case law, regarding the distinctive features of a repair as contrasted with other categories of expenditure. The Note commences with the general observation that – “expenditure on repairs to an asset not comprising trading stock is likely to be of a capital nature, particularly when it is not incurred at regular intervals”.
Protecting your reputation: Deductibility of legal expenses
Authors: Nicole Paulsen and Danielle Botha (DLA Cliff Dekker Hofmeyer) The question of deductibility of legal expenses incurred to protect one’s reputation or the goodwill of a business seems to be a recent hot topic of conversation, especially when following the news. Interestingly, two international cases relating to the deductibility of legal expenses, both related to reducing reputational risk and challenging alleged unfounded allegations against the taxpayer, have recently been handed down in Australia and England, respectively.
Firms seeking tax benefits face legal repercussions
THE tax consequences of decisions made in the boardroom have been highlighted in some recent court cases, where judgments were made against parties who had entered into transactions that were motivated by the potential tax benefits it would bring rather than the profits they would generate. A judgment laid down in the case of ABC vs the South African Revenue Service (SARS) heard in the Western Cape Tax Court last year reiterated the importance of paying attention to the details of a transaction as reflected in the financial statements, including related taxes. ABC acquired land with a forest on it and carried on forestry activities on the land. It then sold the land together with the forest for a specific amount, of which R144.7m related to the forest. The question before the court was whether the R144.7m should be included in ABC’s gross income.
On South African tax compliance, tax morality and taxpayers’ freedom to do tax planning – Canada, Ireland and South Africa are not worlds apart
The upcoming Budget Speech comes against the backdrop of a depressing South African growth rate, stubbornly high unemployment, a depreciating Rand (with more US tapering still to come), continued strikes in the mining sector, deadly service delivery protests and declining tax revenues. On a more positive note: In November 2013 Minister Gordhan pointed to the continued growth in tax compliance by South Africans and said: “… the ability to collect tax revenue …to finance the provision of public services and socioeconomic infrastructure has been a cornerstone of our democracy these 20 years.”