Tax News

Share re-purchase and profit extraction transactions

The favourable tax treatment afforded to dividends in contrast to other forms of income (including capital gains subject to capital gains tax) in terms of South African tax law has resulted in many opportunities for tax arbitrage especially where one is dealing with the sale of shares. Given that dividends are generally exempt from tax in terms of the Income Tax Act No. 58 of 1962 (the ITA) and in certain instances (most notably payments by South African tax resident companies to other South African tax resident companies) exempt from dividends tax, many transactions have typically been structured to take advantage of the favourable dispensation afforded to dividends. A classic example would be for a corporate shareholder to exit its share investment in a company by means of a share repurchase transaction as opposed to the direct sale of shares. There are many commercial benefits of doing so but the Read More …

The picture is almost complete: Further regulations published regarding South Africas carbon tax

Author: Louis Botha and Jessica Osmond. While Greta Thunberg has caught the attention of many in recent times with her climate change activism, on the South African front, we saw some important developments regarding carbon tax in South Africa, specifically the following: On 29 November 2019, the Carbon Offset Regulations were published in the Government Gazette (Final Offset Regulations);

Venture capital companies and trades in respect of immovable property

Author: Ben Strauss. In terms of section 12J of the Income Tax Act 58 of 1962 (Act), put simply, a person who invests in an approved venture capital company may claim an immediate income tax deduction equal to the amount invested (subject to limitations). A venture capital company will only be approved as such if, among other requirements, the sole object of the company is the management of investments in companies that are qualifying companies.

VAT apportionment: An unintended penalty?

Author: Gerhard Badenhorst. The stated policy of the South African Revenue Service (SARS) not to make value-added tax (VAT) apportionment rulings effective retrospectively to prior financial years has been questioned on several occasions. The matter was recently considered by the Tax Court in the case of Taxpayer v Commissioner for the South African Revenue Service (VAT2063) [2019] ZATC2 (15November2019) where the Tax Court found in favour of SARS.

Tax clearance certificates and tax compliance status: Changes on the tax and exchange control fronts

Author: Louis Botha. Recently, the South African Revenue Service (SARS) announced that it would no longer be issuing printed tax clearance certificates (TCCs). The announcement was not unexpected as SARS had already indicated in 2015 when the tax compliance status (TCS) system was implemented, that it would cease issuing printed TCCs at a future date.

Who is liable when a payment is made in terms of an invoice that has been intercepted and altered?

Author: Roxanne Webster and Merrick Steenkamp. Gone are the days of receiving physical invoices. Most, if not all, invoices are now sent electronically. While this may be faster and seemingly more secure, there are still some risks involved. What happens if either the creditors or the debtors email accounts are hacked? What if the banking details on the invoice are changed without either partys knowledge and payment is made? Who is liable in such a scenario?

Amendments to the regulation of primary and secondary listings on the JSE

Authors: Colin du Toit,Madelein Burger,Elodie Maume from Webber Wentzel. ​On 5 November, the JSE Limited (JSE) announced amendments to its Listings Requirements to strengthen the regulation of primary listings and secondary listings. The amendments follow an extensive consultation process with the market and the public that kicked off in September 2018 after the JSE released a consultation paper (Paper) on “possible regulatory responses to recent events surrounding listed issuers and trading in their shares” (click hereto read the e-alert on the Paper).Following the consultations, the JSE published draft amendments in April 2019 for formal comment (clickherefor the e-alert on the draft amendments).

The end of NRV for closing stock (or not?)

Author: Joon Chong, a Partner at Webber Wentzel. The Supreme Court of Appeal (SCA) has for the second time in CSARS v Atlas Copco South Africa (Pty) Ltd, confirmed that the net realisable value (NRV) method is not a suitable method to value closing stock for income tax purposes. The SCA referred with approval to its earlier decision of CSARS v Volkswagen South Africa (Pty) Ltd and held that the NRV method is forward looking, taking into account estimated costs which would still need to be incurred before the stock is sold. The Income Tax Act 58 of 1962 (Act), and calculation of taxable income, is backward looking. The reduction from the cost price of the closing stock should only be allowed in two circumstances: (i) when an event that caused the value of the trading stock to diminish occurred in the tax year; and (ii) when the taxpayer knows Read More …

When should revenue for gift cards be taxable?

Author: Joon Chong, Tax Partner at Webber Wentzel. The recent Tax Court (Cape Town) judgement of IT 24510 confirmed that amounts received by a retailer for the sale of gift cards were not “received or accrued” for purposes of the gross income definition. The taxpayer had not included proceeds from the sale of gift cards as gross income in the year the gift cards were sold, which resulted in the additional income tax assessment and dispute. The court held that the taxpayer had correctly accounted for the value of the cards as gross income on the earlier of the year when the cards were redeemed, or expired. Based on the court’s reasoning, it is submitted that there are strong grounds to argue that there is also no liability to account for value-added tax on the same basis, i.e. not when the cards are sold but when they are redeemed or Read More …