SARS Public Notice 140 (3 February 2016) contains a new list of Reportable Arrangements (RAs) in terms of the Tax Administration Act (TAA). The RA regime acts as an early warning for SARS in respect of various types of arrangements that could pose a risk to the fiscus. RAs do not necessarily allow SARS to act, for example, by disregarding or re-characterising steps in or parts to the arrangement in terms of the general anti-avoidance provisions in the Income Tax Act.
A notable RA relates to services rendered by a non-resident to a South African resident or by a non-resident to a non-resident who has a permanent establishment (PE) in South Africa, to which PE the services relate. To be reportable,
- The services must be rendered to a South African resident or to a South African PE of a non-resident.
- A non-resident or employee, agent or representative of that person must have been or be anticipated to be, physically present in South Africa in connection with or for the purpose of rendering the services.
- The expenses incurred or expected to be incurred in respect of the services on or after 3 February 2016 must exceed or be expected to exceed R10 million and must not constitute “remuneration” as defined in the Income Tax Act.
RAs cover a wide range of services. The term “services” is defined to mean consultancy, construction, engineering, installation, logistical, managerial, supervisory, technical or training services. SARS will arguably not use the information provided in this category to assess whether the non-resident has or will be creating a PE in South Africa. This appears to be an issue that has concerned SARS for some time. If a PE is created, South Africa would generally have the right to tax profits attributable to the PE and collect VAT and employees’ tax.
In the 2016 Budget Speech, Minister Gordhan announced that the withholding tax on service fees, which was set to come into effect from 1 January 2017, would be scrapped as a result of the inclusion of these arrangements in the list of RAs.
RAs must generally be disclosed to SARS within 45 business days of the date on which the arrangement qualifies as an RA, or within 45 business days from the date that a party becomes a participant in the RA. Failure to disclose an RA could lead to the imposition of significant penalties.