The limitation of deductions for untaxed interest

Author: Kyle Mandy (PwC) The Taxation Laws Amendment Bill 39 of 2013 proposes the introduction of a new section (section 23M) to the Income Tax Act (ITA) to limit the deduction of interest incurred by a debtor in respect of a debt owed to a creditor that is in a ‘controlling relationship’ with the debtor and the interest in question is not subject to South African tax. The restriction will apply to interest incurred on or after 1 January 2015. In essence, the section limits the deduction for interest paid between connected persons where the interest is not taxed in the hands of the recipient to an amount determined with reference to 40% of taxable income before interest and capital allowances.

Income Tax Act 58 of 1962 – Deemed exchange gains & losses

Section 24I(10) of the Income Tax Act 58 of 1962 (ITA) has been replaced by a new provision for years of assessment commencing on or after 1 January 2013. Section 24I(10) of the ITA deferred unrealised exchange gains and losses on exchange items between connected persons and groups companies until they were realised. However, section 24I(10) has been deleted and replaced with section 24I(10A)with effect from years of assessment commencing on or after 1 January 2013.

International Tax – South African executives on foreign boards

Introduction South African companies are increasingly looking to global expansion to build their capabilities and expand their operations into foreign jurisdictions. Where South Africans serve on the boards of foreign companies and render services to foreign entities, they typically do so in terms of split employment contracts in respect of their services rendered within and outside of South Africa. In addition to the remuneration, they may also receive directors’ fees for services rendered to the boards. Their employment contracts with the foreign company and the requirement

Tax consequencies of carrying on business through an agent

A decision in the Tax Court in the Western Cape (Case No. 13002) related to the question whether a company was carrying on farming. The company (Company A) had acquired a piece of land on which there were substantial plantations. Company A itself did not wish to exploit the plantations commercially, but wished to ensure their preservation. It therefore entered into an arrangement with a second company (Company B), in terms of which Company B had the right to exploit the timber, but was obliged to maintain the rotation by planting trees to replace those that were cut. Company B was entitled to all proceeds from the exploitation and was obliged to meet its own costs and to keep the plantations insured against fire.

Taxation of Issue of shares as consideration

In order for the ownership of assets to pass from a seller to a buyer it is necessary that the parties agree three essential elements: price, terms and structure. These three elements are interdependent in any transaction. For instance, after agreeing the price of a transaction, i.e. the number of rands or rand value of the consideration the seller will receive, the parties will need to agree the terms such as whether the price will be paid by means of cash, debt and/or shares as well as the timing of these payments.

International Tax – Base erosion and profit shifting

The Organization for Economic Cooperation and Development (OECD) issued a 15 point action plan on base erosion and profit shifting (BEPS). The plan aims to “effectively prevent double non-taxation” and to ensure that low tax jurisdictions will not be able to continue with practices that “artificially segregate taxable income from the activities that generate it”. It seems that the action plan of the OECD will have a huge impact on worldwide transfer pricing and these actions must be carefully considered as it may have a major impact on how multinational groups operate.

Tax in quantification of damages – Barclay v Road Accident Fund [2012] (3) SA 94 (WCC)

The decision of the Cape High Court in Barclay v Road Accident Fund [2012] (3) SA 94 (WCC) concerns the question whether, in quantifying damages for loss of earning capacity, the amount to be awarded to the claimant should be reduced to take account of the income tax that would have been payable if the claimant had received the amount by way of ordinary earnings, rather than as a lump-sum award of damages.

Ringo’s R1.5m ‘tax fraud’

                   Afro soul musician Ringo Madlingozi could face up to 15 years in jail or a hefty fine if he is found guilty of tax fraud and theft, said a tax lawyer on Sunday. Madlingozi allegedly hasn’t been paying his employees’ Pay As You Earn (PAYE) to SARS, but has been deducting it from their salaries since 1999. He reportedly owes SARS R1.5m in PAYE and R421693 in VAT. A charge sheet, which The New Age has seen, shows that the star has been hit with more than 40 charges of theft by SARS. He appeared in the Johannesburg Magistrate’s Court on Wednesday and is expected to be back in court on 9 January 2014.

Capital Gains Tax: Trusts vs Individuals

Author: Rigard Sevenster (Fiduciary Specialist at Glacier by Sanlam.) Many financial planners, and the general public at large, have expressed concern regarding when and to what extent they or their trust is liable for capital gains tax (CGT). Knowing the different tax treatments will assist in choosing how to structure your estate and trust more effectively. In this article we highlight some of the most important differences in CGT from either a trust or an individual’s perspective.

Transfer Pricing – Income Tax Act 58 of 1962 Section 31 further analysis

The provisions of Section 31 of the Income Tax Act No. 58 1962 (the Act) have been revised. Section 31 was introduced in 1995 to grant the Commissioner power to adjust tax calculations where a taxpayer was involved in cross-border transactions not at arm’s length. The old section 31 provided that the Commissioner could adjust the consideration in respect of the transaction to reflect an arm’s length price for the goods or services. This meant that taxpayers were not obliged to make the adjustments on their tax returns for transactions even if such transactions were not conducted on an arm’s length basis. Taxpayers could therefore file tax returns with excessive deductions, and then sit and wait and hope for the best – which would be that the Commissioner did not pick up these excessive deductions.