Author: Heinrich Louw (DLA Cliffe Dekker Hofmeyr) The South African Revenue Service (SARS) issued Binding Private Ruling No 181 (Ruling) on 4 November 2014, which deals with the application of a treaty for the avoidance of double taxation to withholding tax on interest. The applicants were three companies incorporated and tax resident in South Africa, who intend to construct wind farms in South Africa. The Danish Government, through a funding scheme, intends to provide funding to the applicants for purposes of constructing the wind farms. Once the projects are complete, interest will become payable by the Danish Government (via the funding scheme) in respect of the funding, the term being a period of 15 years.
Category: SARS Binding Rulings
Binding Private Ruling 181 – Ruling on withholding tax on interest and the application of a treaty
The South African Revenue Service (SARS) issued Binding Private Ruling No 181 (Ruling) on 4 November 2014, which deals with the application of a treaty for the avoidance of double taxation to withholding tax on interest. The applicants were three companies incorporated and tax resident in South Africa, who intend to construct wind farms in South Africa.
BEPS: the OECD releases the first round of recommendations that are intended to bring about the most significant reform of the international tax system since the 1950s
The Base Erosion and Profit Shifting (BEPS) Project is high on the agenda of the South African Government. Senior government officials, including Deputy President Cyril Ramaphosa, political parties and senior South African Revenue Service (SARS) officials have all publically indicated that BEPS remains a matter of concern. In response, the Davis Tax Review Committee has been tasked to evaluate the South African tax system against internationally accepted tax practices and specifically the OECD’s BEPS project. The committee is expected to produce a report later this year.
Improvements effected on land not owned by the taxpayer
Author: Emil Brincker (DLA Cliffe Dekker Hofmeyr) On 1 October 2014, the South African Revenue Service (SARS) released Binding Private Ruling 180 (Ruling) dealing with the question of whether a taxpayer, who is a party to a Public Private Partnership (PPP), would qualify for a deduction under s12N of the Income Tax Act, No 58 of 1962 (Act) in respect of improvements effected on land not owned by the taxpayer.In respect of PPP’s, Government often undertakes to provide underlying land to a private party for the construction of buildings or the improvement of the land, without parting with ownership of such land.
Binding Private Ruling 166 – A change of domicile by a controlled foreign company
Author: BDO South Africa Binding Private Ruling 166, issued by SARS on 1 April 2014, involved an issue of concern to many holding companies in South Africa that have non-resident subsidiaries which hold their off-shore investments. The issue is whether a South African holding company will be deemed, for the purposes of para 11 of the Eighth Schedule to the Income Tax Act 58 of 1962, to have incurred a ‘disposal’ of assets if its controlled foreign subsidiary changes its domicile, even where its place of effective management remains outside South Africa.
Contentious international corporate restructuring ruling
Author: Andrew Lewis (Cliffe Dekker Hofmeyr) The corporate tax rollover relief provisions contained in section 41 to section 47 of the Income Tax Act, No 58 of 1962 (Act) were recently expanded to cater for international corporate restructurings. The South African Revenue Service (SARS) released Binding Private Ruling 178 (BPR 178) on 14 August 2014 where the applicant sought clarity on the tax consequences of an international corporate restructuring in terms of section 42 (asset-for-share transactions) and s45 (intra-group transactions).
Binding Ruling on leasehold improvements
The South African Revenue Service (SARS) released binding private ruling 177 (Ruling) on 31 July 2014. The Ruling concerned a lease and a sublease and SARS was asked to rule on the income tax consequences for, inter alia, the landlord in circumstances where there is an obligation on the sub-lessee to make improvements to the land.
Ruling on leasehold improvements
Author: Heirich Louw (Cliffe Dekker Hofmeyr) The South African Revenue Service (SARS) released binding private ruling 177 (Ruling) on 31 July 2014. The Ruling concerned a lease and a sublease and SARS was asked to rule on the income tax consequences for, inter alia, the landlord in circumstances where there is an obligation on the sub-lessee to make improvements to the land.
Disposals by share incentive trusts
The South African Revenue Service (SARS) issued Binding Private Ruling 174 (Ruling) on 29 July 2014. The applicant was a share incentive trust established by a local company for the benefit of its employees in senior management. It was proposed that the company would make cash contributions to the trust and the trust would use the cash to purchase shares in the company on the open market. In terms of the incentive scheme, the trust would award the shares in tranches to the employees over a period. When the shares vest, the trust would transfer the shares to the employees.
Binding Private Ruling – Buy back of shares
An interesting advance tax ruling was released by the South African Revenue Service (SARS) on 12 March 2014. Binding Private Ruling 164 (Ruling) deals with the buy-back of ordinary shares by a company at an amount in excess of the market value of the shares.