Hybrid debt instruments what you need to know

Author: Michael Reifarth (Tax Executive at ENSafrica). The hybrid debt rules were introduced into the Income Tax Act, 1962 (the Act) and came into effect in 2014 by way of specific anti-avoidance provisions contained in section 8F and 8FA of the Act. The provisions relating to hybrid debt instruments as contained in section 8F of the Act seek to identify and provide for specific tax treatment of certain debt instruments that contain equity-like features. In instances where section 8F applies to a hybrid debt instrument, the legislation disallows the deduction of the amounts of interest incurred by the issuer and furthermore deems such amounts to be dividends in specie declared and paid by the issuer.

SARS ruling on tax on taking over contingent liabilities in sale of business

The South African Revenue Service (SARS) has sought to provide guidance on a difficult tax issue: the assumption (taking over) of contingent liabilities on the acquisition of a business as a going concern. In this regard SARS has issued Interpretation Note 94 dated 19 December 2016 (IN). The matter is best discussed by way of examples. Example 1: The seller (S) runs a toy shop. He owns the shop building and a stock of toys. The value of the building is R60 and the value of the stock is R30. He owes a supplier R15. S has two employees:

No “halfway-house” for Government Grants

Author: Esther van Schalkwyk, Senior Tax Consultant at BDO SA. In terms of a proposed amendment contained in the Draft Taxation Laws Amendment Bill of 2016 (‘Draft TLAB’), the taxation of government grants will likely change. National Treasury proposed a special inclusion in taxpayers’ “gross income” of “any amount received by or accrued to a person by way of a government grant as contemplated in section 12P”.

Double non-taxation of hybrid debt instruments issued by non-residents

Author: Esther van Schalkwyk, Senior Tax Consultant at BDO South Africa.  National Treasury indicated its intention to address double non-taxation, if an issuer of a hybrid debt instrument is not a South African resident taxpayer, with effect from 24 February 2016. Debt instruments containing equity features are commonly referred to as hybrid debt instruments. The anti-avoidance rules contained in the Income Tax Act reclassify interest on “hybrid debt instruments” and “hybrid interest” as dividends in specie in the hands of the issuer and the holder of an instrument. As a result, the issuer of the hybrid debt instrument is denied an interest deduction against its taxable income and is usually subject to dividends tax. The holder, on the other hand, is deemed to receive an exempt dividend instead of an interest payment.

Funding for small and medium-sized enterprises

The Venture Capital Company (VCC) Tax Regime was introduced into the Income Tax Act 58 of 1962 (Act) to encourage investment into small and medium-sized enterprises (SMEs) and junior mining companies. Since its inception in 2008 and despite subsequent amendments in 2011, there has been limited take-up in the market, with only a handful of VCC funds having become fully funded and operational.

Taxable benefits provided to expatriate employees seconded in South Africa

Author:  Jerome Brink. The nature of the business of many multinational companies requires them to send their employees to other countries across the globe in order to, among other things, manage and assist with special projects, implement firm-wide systems and ensure a standard level of quality in operations. Such seconded employees are often subject to tax in their host country, yet remain tax residents in their home country.

About mines and houses: a ruling on expenditure incurred to implement a housing scheme

In our Alert of 29 April 2016, we discussed the Ruling dealing with the tax consequences of a housing scheme carried out by a mining company, specifically whether such a housing scheme would give rise to a fringe benefit in the hands of the beneficiaries of the scheme (Every house has a story: Does employer-provided accommodation always constitute a fringe benefit?). In this article, we discuss another Ruling dealing with certain tax consequences from the perspective of the mines which implement the housing scheme. On 10 June 2016, the South African Revenue Service (SARS) issued Binding Private Ruling 239 (Ruling) which deals with the income tax consequences resulting from cash contributions to be made by the Applicant (as a party to a mining joint venture) to a special purpose vehicle established to provide housing for the employees of the joint venture and the Applicant’s group of companies.

New ITR14 requires country-by-country reporting in company tax returns

Authors:  Lavina Daya and Scott Salusbury. In October 2015, the Organisation for Economic Cooperation and Development (“OECD”) published its final reports on the Base Erosion and Profit Shifting (“BEPS”) project, including the final report on BEPS Action 13, Transfer Pricing and Country-by-Country Reporting (“Action 13 Report”). The Action 13 Report recommended a three-tiered approach to transfer pricing documentation, requiring a global master file and local file to be submitted by multinational enterprises (“MNEs”) to local tax authorities and a country-by-country (“CbC”) report to be submitted by the “ultimate parent entity” of an MNE in the jurisdiction in which it is tax resident. The CbC report will contain information to provide the tax authorities with an overview of the global allocation of income, business activities and taxes paid within the MNE. The tax authorities of various jurisdictions will share CbC reports through automatic exchange of information mechanisms, such as the Multilateral Competent Read More …

Tax administration – Prescription

From time to time, our courts are called upon to remind public officials that compliance with the requirements of provisions in legislation is necessary to enable them to enforce the powers entrusted to them. The requirements are in place to enable the public to understand the reasons for the administrative action and to determine whether the action is compliant with the law.

Crowdfunding and tax – two’s company, three’s a crowd

Authors: Michael Reifarth and Yani van der Merwe (ENSafrica). There has been a rapid expansion of the crowdfunding industry during the last couple of years where businesses and entrepreneurs use crowdfunding platforms to promote their business ideas and to obtain funding from the public to finance their ventures. Although there are advantages and disadvantages to a crowdfunding arrangement in comparison to traditional funding arrangements, one constant factor applicable to both alternatives is that the transactions between the recipient and the provider of funding will, at all times, be subject to the provisions of the Income Tax Act, No. 58 of 1962 (the “Act”). In this article, we briefly consider some of the possible South African tax implications that may arise pursuant to the utilisation of the various types of crowdfunding that have lately been gaining traction in South Africa.