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Contributed tax capital (CTC) is a tax concept that in essence is the consideration that is received by or that accrues to the company from the issue of its shares. It is defined in relation to each class of a companys shares. In the case of a non-resident company that becomes a South African resident company (due to the companys place of effective management changing to South Africa), CTC is defined as the market value of all the shares in the particular class immediately before the date on which the company becomes a South African resident. The definition of CTC underwent recent amendments to counter perceived avoidance and the 2023 Budget Review proposes further amendments.

This year’s National Budget, delivered on Wednesday, was dominated by South Africa’s power woes, with Finance Minister Enoch Godongwana announcing that government will take over a large part of Eskom’s debt. In addition, major tax incentives were announced to encourage more South Africans to embrace renewables and get off the grid. The Budget confirmed that South Africa has stepped further away from a fiscal cliff that loomed in 2020, with its ballooning state debt starting to stabilise, and tax revenue larger than previously expected. But Godongwana warned of major risks ahead. State of government finances Thanks to stronger-than-expected tax revenues, South Africa enjoyed a main budget primary surplus meaning that government spending (excluding debt interest payments) is less than the revenue it received – for the first time since 2008/09. Government’s tax income was almost R94 billion more than it expected a year ago. This will help the government’s budget Read More …

In this budget speech, a lot of questions linger, South Africans are seeking clarification on a variety of important subjects, including inflation which is evidently rising along with the rest of the world. Although inflation may have slowed down in part, it is still driving up wage demands. Will the government provide financing for Eskom and free the parastatal from its chronic predicament? Will Finance Minister Enoch Godongwana address the economic risks posed by state-owned enterprises such as Denel, Sanral, and Transnet?

Tackling base erosion and profit shifting remains a priority for the National Treasury and the South African Revenue Service (“SARS”). It was recently reported that in the 2021 fiscal year, SARS dealt with 345 cases of transfer pricing, base erosion and profit shifting to the value of almost ZAR12-billion. Yet, only three South African courts have dealt with transfer pricing. In none of these cases, however, was it necessary for witnesses to testify about the impugned transaction. It follows that this limited transfer pricing jurisprudence does not deal with the evidentiary aspects that may necessarily arise in such a dispute. A case in point is the evidentiary value of comparable transactions. A comparability analysis typically involves a comparison between the taxpayer’s transaction with third-party transactions which are comparable. Taxpayers usually rely on such a comparison to show that they transacted at arm’s length. But in transfer pricing matters, SARS often Read More …

Alleged base erosion and profit shifting activities of multinational enterprises (“MNEs”) have been a hot issue globally and therefore the chances of an MNE being confronted with a transfer pricing audit have increased substantially over the last few years. Owing to the intense focus on transfer pricing by almost all tax authorities around the world, together with a growing focus on international exchange of information, it seems only a matter of time before any MNE will be subject to transfer pricing audit scrutiny. Steps taken in preparation of a South African transfer pricing audit Taxpayers need to proactively adopt strategies that will enable them to manage the risks associated with the transfer pricing audit. Performing a self-assessment: A regular assessment of your inter-company transactions, the assessment of functions, assets and risks as well as the pricing structure is key. Check that your policy is up to date, ensure validity and Read More …

In the Tax Court judgment of Taxpayer A v Commissioner for the South African Revenue Service IT 25042, the taxpayer wanted a deduction for finance charges under section 24J of the Income Tax Act, 1962 in its income tax return for the 2016 year of assessment. The finance charges were comprised of raising fees, debt origination fees and structuring fees (collectively the “upfront fees”) which emanated from the taxpayer entering into loan agreements for the purposes of their property development and investment business. The court found that the upfront fees constituted “related finance charges” and therefore “interest” as defined in section 24J as it read at the time. It follows that the taxpayer was entitled to a deduction for the upfront fees in terms of section 24J. The definition of “interest” in section 24J had been amended with effect from 19 January 2017 to allow for a deduction of the Read More …

On 6 October 2022, as part of the ongoing work of the OECD/G20 Inclusive Framework (“IF”) on Base Erosion and Profit Shifting (“BEPS”) to implement the Two-Pillar solution to address the tax challenges arising from the digitalisation of the economy, the OECD released its progress report for comment. Background The report was prepared for the purposes of obtaining further input from stakeholders on the administration and tax certainty aspects of Amount A. Comments are requested with respect to the processes and rules contained in this document. Comments are required by no later than Friday, 11 November 2022. Significant progress has been made in developing the comprehensive technical rules for the new taxing right (Amount A) for market jurisdictions established under Pillar One. It is recognised that the substance of these rules must be stabilised before the development and completion of a Multilateral Convention (“MLC”) which will be signed and ratified Read More …

Due to the impact of the COVID-19 pandemic, many employers have seen an increased demand for international remote working arrangements. We have briefly touched upon the OECD guidelines relevant to these arrangements in a prior article. Different tax consequences of international remote working may arise for both employers and employees, depending on the facts, such as employees working in South Africa for a foreign employer and employees working abroad for a South African employer. However, there are certain key issues that are common to these scenarios. We deal with some of these below. Corporate income tax considerations for the employer company Where an employee works abroad, a key consideration from a corporate income tax perspective is whether the activities of that employee in the foreign country could create a taxable presence for the employer. This would most likely be the case if: the employer is regarded as carrying on a Read More …

Author: Joon Chong, Partner at Webber Wentzel. A gain on the disposal of crypto assets may be taxed as either revenue or capital, in line with the same income tax rules that apply to the disposal of shares or unit trusts The gyrations of cryptocurrency markets have delivered a first wake-up call to crypto traders and investors who thought it was an easy way to make money. The second alarm is about to go off as SARS is looking at how to tax all possible crypto activities. Work on new tax and financial regulatory laws that will apply to crypto assets has already begun, and the South African Reserve Bank (SARB) is taking the lead. In a recent presentation, the deputy governor said that the SARB was busy with various workstreams, including a regulatory framework for crypto exchange platforms that will ensure compliance with anti-money laundering / countering the financing Read More …

Author: Scott Edmundson, Partner at Webber Wentzel. The National Treasury has published the Taxation Law Amendment Bill. This bill, effective from 1 January 2023 will have important tax consequences for lessors in the airline industry. Effective 1 April 2021, the Taxation Laws Amendment Act 23 of 2020 (the Amendment Act) amended the definition of “enterprise” in section 1(1) of the Value-Added Tax Act 89 of 1991 (the VAT Act) to include a statutory exemption (in the form of a new proviso (xiii)) for the supply of goods (aircraft, ships and rolling stock) by a non-resident lessor pursuant to a cross-border rental agreement (the Exemption). In terms of the Amendment Act, the Exemption applies to, inter alia, a non-resident lessor leasing an aircraft for use in South Africa, provided: the lessor is not a registered vendor in South Africa for VAT purposes; the supply is made to a recipient (a lessee) Read More …