Author: Lisa Brunton (CliffeDekkerHofmeyr) In our Tax Alert of 15 March 2013 we reported on the South African Revenue Services’ (SARS’) draft Interpretation Note on the interaction between the definition of a ‘group of companies’ as it appears in s1 and s41(1) of the Income Tax Act, No 58 of 1962 (Act). SARS embellished the draft Interpretation Note somewhat with the release on 24 October 2013 of Interpretation Note No 75 (IN 75) dealing with the exclusion of certain companies and shares from a ‘group of companies’ as defined in s41(1) of the Act. IN 75 has now been superseded by the release of Issue 2 of IN 75 on 22 September 2014.
Category: Corporate Tax
Construction firms’ tax affairs worry SARS
Author: Linda Ensor (BDlive) The South African Revenue Service (SARS) is concerned about the low level of tax compliance in the construction industry, whose reputation was tarnished by widespread bid-rigging and price fixing uncovered by the Competition Commission. Last year 15 companies paid a total fine of R1.46bn for collusive tendering following an investigation by the commission. Now it transpires that the tax authority has had to dig deep for data and badger construction companies to pay their dues to the fiscus.
Coltrade International CC v CSARS WCHC 45213/2013 (9 Sep 14)
Author: Pieter Faber (SAIT Technical Executive: Tax Law & Policy) Introduction This case is an appeal to the Gauteng division of the High Court in Pretoria by the taxpayer, Coltrade International CC (‘Coltrade’), against a tariff determination made by SARS, in terms of section 47(9)(a) of the Customs and Excise Act (No. 91 of 1964) (‘Customs Act’), that the coconut milk, coconut cream and coconut powder imported by Coltrade was incorrectly classified. The parties have agreed that the dispute would apply to all three the products and if the taxpayer was not successful on appeal, SARS’ tariff determination would apply to all the goods in dispute. The court therefore had to determine which tariff heading would apply to the goods.
SARS takes another stab at interpreting the ‘group of companies’ definition
Author: Lisa Brunton (DLA Cliffe Dekker Hofmeyr) In our Tax Alert of 15 March 2013 we reported on the South African Revenue Services’ (SARS’) draft Interpretation Note on the interaction between the definition of a ‘group of companies’ as it appears in s1 and s41(1) of the Income Tax Act, No 58 of 1962 (Act). SARS embellished the draft Interpretation Note somewhat with the release on 24 October 2013 of Interpretation Note No 75 (IN 75) dealing with the exclusion of certain companies and shares from a ‘group of companies’ as defined in s41(1) of the Act. IN 75 has now been superseded by the release of Issue 2 of IN 75 on 22 September 2014.
Proposed simplification of foreign business establishment exemption for controlled foreign companies
Author: Heinrich Louw of Cliffe Dekker Hofmeyer In terms of s9D of the Income Tax Act, No 58 of 1962 (Act), a South African tax resident can be taxed on the ‘net income’ of its controlled foreign companies (CFC). However, various exemptions exist in this regard. For example, in terms of the second proviso to the definition of ‘net income’ in s9D(2A) of the Act, the net income of a CFC will be deemed to be nil if the taxes payable by that CFC in foreign jurisdictions are at least equal to 75% of the tax that the CFC would have paid had it been a South African tax resident. This is often referred to as the high-tax exemption. In performing the calculation regard must be had to any international treaties for the avoidance of double taxation, and tax credits or rebates.
OECD releases finalized proposals on key tax base erosion concerns
On September 16, 2014, the Organization for Economic Cooperation and Development (OECD) released its 2014 deliverables on the Base Erosion and Profit-Shifting (BEPS) project. The BEPS project, an ambitious and wide-ranging effort by the OECD’s Centre for Tax Policy and Administration (CPTA), is aimed at combating tax avoidance strategies in which global businesses minimize their overall tax burden by moving profits into taxpayer-friendly jurisdictions and exploiting differences in the tax laws and treaties of countries around the world. The OECD began its efforts in 2013 at the behest of the G-20 group of nations, which had come to understand that any serious effort to prevent these tax avoidance strategies would require centralized, coordinated planning and study.
Concerns raised on interest deduction limitation rules
Interest deduction limitation provisions have been enacted in terms of s23N of the Income Tax Act, No 58 of 1962 (Act), which apply to so called ‘reorganisation and acquisition transactions’. These provisions have been in effect since 1 April 2014. The purpose of these provisions (as the heading suggests) is to limit interest deductions in respect of certain debt arrangements that National Treasury consider as being susceptible to excessive gearing.
Expenditure relating to deferred accruals
Background The taxpayer operated a mine. Firstly, it would extract mineral ore from the earth, and secondly, by smelting and other processes, it would extract a concentrate (containing the minerals) from the ore. The taxpayer sold the concentrate to a subsidiary company. In terms of the agreement with the subsidiary, and in respect of the sale of concentrate in any particular month, the purchase price would only be finally determined five months later. Section 24M of the Income Tax Act, No 58 of 1962 (Act) allows a taxpayer to include in its gross income an amount accruing to it in a particular tax year only in the tax year that the amount is finally determined.
Tax consequences arising from the writing off of loans
Author: Peter Dachs of ENSafricaWe are often spoken of as an economy with high levels of debt. Even when interest rates are high, we have never been scared of gearing ourselves so that we can buy that expensive car or holiday house in Hermanus. Companies too often have high levels of debt.
Debt restructuring – practical considerations
With effect from 1 January 2013, new rules were introduced in the Income Tax Act No. 58 of 1962 (‘the Act’) governing the tax consequences flowing from the reduction or waiver of debts. According to the Explanatory Memorandum, the amendments were prompted in response to the global financial crisis and the unusually large number of companies facing financial distress. The intention was therefore to establish a mechanism which facilitated debt reductions without creating an additional obligation to pay further tax.