Author: Dr Beric Croome – ENSafrica Tax Executive Where a foreign company renders professional services to a South African company in South Africa, it is important that the foreign entity considers whether, as a result of rendering such services, the foreign company will create a permanent establishment in South Africa. The reason why this becomes important is that where a foreign company creates a permanent establishment in South Africa, this country will under the provisions of a Double Tax Agreement (“DTA”) concluded with another country, be entitled to subject that foreign entity to tax on the profit attributable to that permanent establishment created in South Africa.
Category: GAAR
Third party returns – exchange of information in accordance with international tax standards
In order to provide the necessary legislative amendments required to implement the tax proposals that were announced in the 2015 National Budget on 25 February 2015, the National Treasury (Treasury) published the 2015 Draft Tax Administration Laws Amendment Bill (TALAB) on 22 July 2015 for public comment. One of the important proposals relates to greater tax transparency and the automatic exchange of information between tax administrations in various jurisdictions in order to counter cross-border tax evasion and aggressive tax avoidance. To this effect, s32 of the TALAB proposes the insertion of a definition of “international tax standard” in s1 of the Tax Administration Act, No 28 of 2011 (TAA), to mean “an international standard as specified by the Commissioner by public notice for the exchange of tax-related information between countries”.
Binding Private Ruling – Debt reduction by way of set-off
The South African Revenue Service (SARS) published Binding Private Ruling No. 193 (BPR 193) on 15 June 2015, which deals with the repayment of a shareholder loan by way of set-off with an outstanding loan under a subscription agreement. The applicable provisions in the Income Tax Act, No 58 of 1962 (Act) are s19 of the Act and paragraphs 12A and 20(3)(b) of the Eighth Schedule to the Act. The applicant in the transaction to which BPR 193 applies is a company incorporated in and resident of South Africa (Applicant). The second party to the transaction is the holding company of the Applicant and a non-resident for South African tax purposes (Holdco).
Tax consequences of foreign companies rendering services in South Africa
Where a foreign company renders professional services to a South African company, it is important that the foreign entity considers whether, as a result of rendering such services, the foreign company will create a permanent establishment in South Africa. The reason why this becomes important is that where a foreign company creates a permanent establishment in South Africa, South Africa will under the provisions of a Double Taxation Agreement (“DTA”) concluded with another country, be entitled to subject that foreign entity to tax on the profit attributable to that permanent establishment created in South Africa. In the case of X LLC, case number 13276 heard in February 2015, as yet unreported, the Tax Court had to determine whether X had created a permanent establishment in South Africa, and as a result thereof, was liable to tax in South Africa. The case involved a corporation incorporated in the United States of Read More …
Cross-border technical services income – Double tax agreements should be considered to reduce double tax burdens
Author: Bruce Russell, tax consultant Grant Thornton Cape South African resident taxpayers performing advisory or other technical services within South Africa to clients abroad, may be subject to foreign withholding taxes. To reduce the risk of this income being subjected to double taxation, it is necessary to consider the source of this income. The source of services income South African courts have interpreted the concept of source in applying the Income Tax Act. Source in this context is not a legal concept, but rather something a reasonable man would regard as the real source of income.
Global tax surveillance
Even George Orwell, with his prophetic satirical insight, would have been confounded by the level of domestic and global surveillance that characterises our lives today. Indeed, given the objectives of the Organisation for Economic Development and Cooperation (OECD) Base Erosion and Profit Shifting (BEPS) Action Plan – to combat international tax avoidance by multinational enterprises (MNEs) and to secure government revenues – surveillance in the form of the inter-jurisdictional exchange of information and administrative assistance for tax collection purposes is not only justifiable but indispensable. Nonetheless, it behoves taxpayers to be alert to the rapidly expanding web of tax surveillance in which they operate.
Changes to reportable arrangements previously listed in draft notices
On 16 March 2015, the Commissioner for the South African Revenue Service published Public Notice No. 212 in Government Gazette No. 38569 listing certain arrangements as ‘reportable arrangements’ for purposes of s35(2) and s36(4) of the Tax Administration Act, No 28 of 2011 (TAA) (Notice). With effect from the date of publication of the Notice, all previous notices issued under s80M(2)(c) and s80N(4) of the Income Tax Act, No 58 of 1962 (ITA) and s35(2) of the TAA were replaced.
FATCA – Approaching the 30 June 2015 Reporting Deadline
The United States of America (US) Congress enacted the Foreign Account Tax Compliance Act (FATCA) in 2010. FATCA aims to identify non-compliance by US taxpayers (including US taxpayers not residing in the US), which may previously have been concealed by using foreign financial accounts. FATCA imposes reporting obligations on US individual taxpayers (and certain individuals who own predetermined foreign financial accounts or offshore assets) and Foreign Financial Institutions (FFIs). In terms of FATCA, FFIs include South African banks and custodians, brokers, asset managers, private equity funds, certain investment vehicles, long-term insurers and other participants in the financial system.
The conundrum of the interplay between interest deduction limitations, interest withholding tax and double tax agreements
Author: Gerdus van Zyl (Tax Manager at ENSAfrica) The conundrum of the interplay between interest deduction limitations, interest withholding tax and double tax agreements The deductibility of interest has for years been a contentious issue and this has been reaffirmed with the introduction of section 23M into the Income Tax Act No 58 of 1962 (the “Act”) with effect from 1 January 2015. A further addition to the interest sphere of income tax is the introduction of interest withholding tax provisions in sections 50A to 50H, which came into effect on 1 March 2015.
Reportable arrangements specifically extended to foreign trust structures
On 16 March 2015, the Commissioner for the South African Revenue Service (SARS) published Government Notice No. 212 in terms of s35(2) and s36(4) of the Tax Administration Act No, 28 of 2011 (TAA) specifically listing certain arrangements as so-called reportable arrangements (Notice). These listed arrangements are in addition to the arrangements that are already listed in s35(1) of the TAA. The effect of an arrangement being regarded as a reportable arrangement for purposes of s35 of the TAA read with the Notice is that,