Proposed unilateral extension of prescription by SARS

Section 99 of the Tax Administration Act, 28 of 2011 (“Tax Admin Act”) regulates prescription in relation to tax assessments and provides for a three year prescription period in respect of income tax assessments and a five year prescription period in the case of self-assessment taxes (e.g. value-added tax and employees’ tax). Generally, the prescription period that prohibits SARS from issuing an additional assessment does not apply if the reason why the full amount of tax was not charged was due to fraud, misrepresentation or non-disclosure of material facts by the taxpayer. When the tax is a self-assessment tax, the basis on which the prescription period does not apply differs in that it refers to fraud, as well as intentional and negligent misrepresentation or non-disclosure.

Binding Ruling on issue of capitalisation shares

The South African Revenue Service (SARS) issued Binding Private Ruling No 201 (Ruling) on 13 August 2015. The Applicant, being a natural person, held 100% of the equity shares in a resident operating company (OpCo). OpCo, in turn, owned 100% of the shares in a dormant resident company (Co-Applicant). The parties wished to introduce a black-owned company (BEECo) as a shareholder in OpCo in order to improve its Black Economic Empowerment (BEE) credentials.

Construction and interpretation of tax legislation: then and now

The principle relating to the construction and interpretation of fiscal legislation are in general those relating to the construction and interpretation of statutes. As early as 1926 Judge Stratford held in Farrar’s Estate v CIR that ‘[the] governing rule on interpretationis to endeavour to ascertain the intention of the law-maker from a study of the provisions of the enactment in question‘. In regard to tax legislation, Income Tax Acts in particular, the language imposing the tax must receive a strict construction.  Judge Rowlett held in Cape Brandy Syndicate v I.R. Comrs that ‘…in a taxing Act one has to look at what is clearly said.  There is no room for any intendment.  There is no equity about a tax.  There is no presumption as to a tax.  Nothing is to be read in, nothing is to be implied.  One can only look fairly at the language used’.

A “how to guide” for SARS objections and appeals

Author: Anton Lockem of Shepstone & Wylie Attorneys As a taxpayer, if you receive an assessment from the Commissioner of the South African Revenue Services (“SARS”) that you disagree with, you can lodge an objection in line with the Tax Administration Act, No. 28 of 2011 (“the Act”). Under section 96(2) of the Act, the Commissioner has to supply the taxpayer with the grounds of the assessment.  It is often the case that the taxpayer needs to demand that the Commissioner comply with this statutory obligation, as there have been many cases where grounds have not been supplied.  Thetaxpayer is required to submit a request for grounds within 30 days of receiving an assessment.  Once grounds have been supplied, the taxpayer has 30 days to submit an objection to the assessment. Taxpayers need to submit the correct documentation for their objection in order for it to be valid: For personal income tax payers a notice of objection or form NOO is required via efiling; For corporate Read More …

Constitutional Court judgment on the in duplum rule – does it limit interest payable on a tax debt?

The recent Constitutional Court judgment of Paulsen and Another v Slip Knot Investments 777 (Pty) Limited 2015 centered on the common law in duplum rule.  The in duplum rule operates to protect debtors from becoming over-indebted to creditors  by only allowing arrear interest to accumulate up to the capital amount loaned to a debtor.  Interest ceases to run once the accumulated arrear interest equals the capital amount. In this case, the Constitutional Court held that the operation of the in duplum rule is no longer suspended for the duration of litigation.

Binding Private Ruling – Exemption from donations tax and the net value of an estate

On 1 July 2015, the South African Revenue Service (SARS) released Binding Private Ruling 197 (BPR 197) dealing with the donations tax consequences arising from the onward or subsequent donation of funds received by way of a donation from a foreign source. BPR 197 further deals with the estate duty consequences that will apply in the event of the foreign sourced funds being retained or used to acquire property that is located and remains outside South Africa.

Binding Private Ruling – Awards from foreign trusts

The South African Revenue Service (SARS) published Binding Private Ruling No 197 (Ruling) on 1 July 2015. The Ruling deals with the receipt of funds from a foreign trust, and the subsequent donation and investment thereof. The applicant was an individual resident in South Africa. The applicant was also a beneficiary of a foreign trust. The foreign trust only held funds sourced from outside South Africa. The trustees of the foreign trust resolved to award a specified amount of the foreign trust funds to the applicant, after which the applicant would be removed as a beneficiary.

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.

Interpretation of exemption provisions

The Tax Court gave judgment in the matter of ABC (Pty) Ltd vCommissioner for the South African Revenue Service (case number 13512, as yet unreported) on 30 March 2015. Even though the case concerned secondary tax on companies (STC), which has been replaced by dividends tax, it is interesting to see how the court dealt with the interpretation of an exemption provision.

Binding Private Ruling on a Notional Funding Arrangement: the Issue and Repurchase of Ordinary Shares

SARS issued the Binding Private Ruling 190 on 5 March 2015, which deals with the issue and repurchase of ordinary shares. The ruling deals with a proposed arrangement and the contractual rights and restrictions established separately from any class provisions applicable to those shares in terms of the Applicant Company’s memorandum of incorporation. The parties to the ruling include the Applicant, which is a company incorporated in and a resident of South Africa; and the Co-Applicant which is a company incorporated in and a resident of South Africa.