Author: Morongoa Matlala Introduction Sections 11(a) and 23(g) of the Income Tax Act No. 58 of 1962 (“the Act”) are commonly referred to as the “general deduction formula”. As the name suggests, it is in terms of these sections of the Act that tax deductions in general are sought to be claimed by taxpayers. The Act does, however, contain provisions which are specially tailored for the deduction of specific expenditure. Section 24J of the Act (“section 24J”) is one such provision and allows taxpayers to claim a deduction specifically for interest expenditure.
Category: GAAR
Action plan to stem tax avoidance is a good start
Author: Mzukisi Qobo (BDlive) The brunt of tax avoidance by big corporations falls heavily on poor countries, with long-term effects on growth and social stability. African countries are the poorer for it. The recent Organisation for Economic Co-operation and Development (OECD) action plan on base erosion and profit shifting, adopted by Group of 20 (G-20) finance ministers in Peru a week ago, has been hailed as groundbreaking. The measures it proposes create an important basis for evolution of new norms on international tax treaties and to curb aggressive tax planning by companies.
The right of tax authorities to demand production of documents
A recent decision in the Federal Court of Canada in the matter of Minister of National Revenue v BP Canada Energy Company 2015 FC 714 dealt with the Canadian law concerning the right of the Canadian Revenue Authority (‘CRA’) to demand information from taxpayers. In the preparation of its annual financial statements, BP Canada Energy Company (‘BP’) prepared workings in which it analysed tax positions that it had taken in which there might have been a difference between its interpretation of the law and the interpretation of the CRA. These working papers supported a reserve for tax contingencies. They also listed issues on which the interpretation was uncertain (‘issues list’).
Exchange control stupidity
The standard argument from National Treasury about exchange controls is basically as follows: ‘We don’t have enough foreign exchange reserves so they can’t be abolished – so we’ll do nothing (except up a few limits every few years). The debate therefore goes nowhere. My question is: Even accepting that National Treasury feels that exchange controls can’t be abolished, why does no one in the National Treasury or the South African Reserve Bank (Sarb) seem interested in meaningful administrative reform and cutting red tape while we wait for our reserves to increase? You would probably think from the representations made by the exchange control authorities to the High Court, the Supreme Court of Appeal and the Constitutional Court over the last two years that very high-powered complex financial issues are at stake – as well as the country’s economic viability as a whole. It has been argued up to Constitutional Court level that Read More …
The Mark Lifman judgment: the High Court refuses to interdict the enforcement by SARS of a judgment taken against the taxpayer
Mark Lifman has recently been the subject of many lurid newspaper stories, with City Press describing him as ‘one of South Africa’s biggest underworld bosses and one of Cape Town’s richest and most feared underworld figures’. It has been reported that he owes SARS some R388 million in tax. Not for the first time in history has a powerful underworld figure met his Waterloo when engaging with the tax authorities. A judgment of the Cape Town High Court delivered on 17 June 2015 (but not yet reported) recorded that Lifman and various close corporations of which he was the sole member owed an undisputed tax debt to SARS of over R13 million (some R3 million of which was owed by Lifman personally) that had accumulated over some ten years. Further tax debts (see para [6]) were still in issue.
No tax relief for hedge funds?
Author: Magda Snyckers (ENSafrica) With effect from 1 April 2015, the business of a hedge fund has been declared to be a collective investment scheme (“CIS”) in terms of section 63 of the Collective Investment Schemes Control Act 45 of 2000 (“CISCA”). Accordingly, hedge funds are now subject to and regulated by certain prescribed provisions of CISCA. As a result, a person that conducts the business of a hedge fund must, within 6 months from 1 April 2015, lodge with the registrar of the Financial Services Board an application for registration as a manager to operate a hedge fund in accordance with section 42 of CISCA. Hedge funds typically constitute en commandite partnerships or trusts and a substantial amount of the investors into such hedge funds constitute tax exempt institutions.
Foreign entities deriving income from South Africa must register as taxpayers
Author: Douglas Gaul, Tax Manager Grant Thornton Johannesburg It has long been a requirement that a non-resident company, trust or other juristic person must file a tax return if it carried on a trade through a permanent establishment in South Africa, or derived any capital gain from a South African source. Every year, the requirements for submitting income tax returns are published by way of a notice in the Government Gazette and it is interesting to note that the requirements for submitting returns for the 2015 year now include non-resident companies, trusts or other juristic persons that derive income from a source in South Africa.
Limitation on the deductibility of interest
Author: Mike Betts, Partner Grant Thornton Cape The February edition of e-taxline, Ignore 1 January 2015 tax changes at your peril, dealt with some important amendments to tax legislation that came into effect on 1 January and 1 March 2015. Another amendment that came into force on 1 January 2015 and requires careful consideration is contained in section 23M of the Income Tax Act (’the Act’) and deals with limitations on interest deductions for certain loan transactions. Specifically, if a resident taxpayer (the debtor) borrows funds from another entity (creditor), but the creditor is not liable for tax on the interest in South Africa and the parties are in a controlling relationship with each other, then the debtor’s interest deduction for tax purposes may be limited.
Revised draft interpretation note regarding “place of effective management”
Author: Annalie Pinch and Chris de Bruyn Earlier this year, the South African Revenue Service (“SARS”) released issue 2 of Interpretation Note 6 (“draft Interpretation Note”) on the “place of effective management” (“POEM”). Comments were due by 31 July 2015. POEM is often of critical importance in determining the tax residency of an entity. The interpretation previously put forward by SARS in terms of Interpretation Note 6 issued during 2002 (“IN6”) in this regard, did not accord entirely with international precedent and the approach followed by SARS was that the POEM is:
New High Court ruling – SARS vs Taxpayer (taxpayer found not guilty of various tax acts)
Author: Oddette Boshoff (Unikone) In a recent (as yet unreported) High Court case, the Court overturned the previously guilty ruling of the Regional Court and ruled in favour of a taxpayer against SARS. The taxpayer was initially charged and found guilty in the Regional Court on fraud as well as several transgressions of various tax acts.