JOHANNESBURG – Taxpayers who accidentally reduce their tax liability due to a reasonable mistake without any intent to defraud the Taxman, won’t be subjected to harsh understatement penalties in future. The Tax Administration Laws Amendment Bill was introduced in the National Assembly last week and revises regulations to such an extent that the South African Revenue Service (Sars) won’t impose penalties in cases where the understatement by the taxpayer “results from a bona fide inadvertent error”. This follows criticism from tax practitioners and taxpayers on the harsh penalties previously imposed even where taxpayers had no intention of deceiving Sars.
Category: Dividend Tax
Issue of shares as consideration
In order for the ownership of assets to pass from a seller to a buyer it is necessary that the parties agree three essential elements: price, terms and structure. These three elements are interdependent in any transaction. For instance, after agreeing the price of a transaction, i.e. the number of rands or rand value of other consideration the seller will receive, the parties will need to agree the terms such as whether the price will be paid by means cash, debt and/or shares as well as the timing of these payments.
Binding class ruling on dividends distributed by a foreign company
On July 24 2013 The South African Revenue Service (SARS) issued Binding Class Ruling 41 regarding the question of whether a dividend distributed by a foreign company constitutes a ‘foreign dividend’ as defined in Section 1 of the Income Tax Act (58/1962). The applicant was a foreign corporate partnership limited by shares. Its structure was essentially a hybrid between a partnership and a limited liability company, which is
Taxation of Foreign Dividends
Author: Tarryn Spearman(Grant Thornton) Significant changes were introduced to the way foreign dividends, received by South African residents, are treated for tax purposes. The purpose of these changes is to eliminate the disparity between the tax treatment of domestic and foreign dividends.
Ruling on dividends tax on shares held by local branches
On June 19 2013 the South African Revenue Service (SARS) published Binding Private Ruling 148. The ruling dealt with whether the dividends tax rate applicable to dividends paid on shares held by a local branch of a foreign company can be reduced by a relevant double tax agreement. The facts were briefly as follows.
Recharacterisation of dividends as income
The 2013 draft Taxation Laws Amendment Bill has introduced significant changes insofar as the taxation of dividends are concerned, specifically dividends paidin respect of unvested shares held via employee share schemes. By way of background, the Income Tax Act, No 58 of 1962 (Act) currently contains certain anti-avoidance rules to prevent taxpayers from converting high-taxed salary into low taxed dividends.
Disposal of shares by a special purpose vehicle
Judgment was handed down in the case of A (Pty) Ltd v Commissioner for the South African Revenue Service (case number 13003, as yet unreported) on 13 June 2013. The case involved the timeworn question of whether the receipts or accruals in respect of the disposal of a particular asset constitute gross income, or whether it is excluded as being capital in nature.
Mutual assistance provisions in double tax agreement between United Kingdom and South Africa
In the recent case of Ben Nevis (Holdings) Limited & Metlika Trading Limited v The Commissioners for HMRC (Her Majesty’s Revenue and Customs) [2013] EWCA, the Court of Appeal of England and Wales considered the interpretation of the mutual assistance provisions in the double tax agreement (DTA) between the United Kingdom (UK) and South Africa (SA).
STC credits: Planning required to ensure it does not go to waste
When dividends tax was introduced with effect from 1 April 2012 many companies still possessed STC credits. These STC credits arose from the fact that more dividends were received by or accrued to the company in the last dividend cycle than dividends declared during such a dividend cycle. The balance of STC credits as at 31 March 2012 are carried forward into the dividends tax system in terms of section 64J of the Income Tax Act (hereafter the Act).
Year in Review – 2012 Tax Developments in South Africa
During 2012 a number of significant amendments were made to the tax legislation in South Africa. This report provides a brief description of certain of these amendments which may be of interest to foreign companies that conduct business in South Africa as well as those seeking investment opportunities in South Africa.