Tax News

Changes to the South African Exchange Control Rules

Authors: Cor Kraamwinkel,a Partner, Keith Veitch,a Consultant & Sean Franken, an Associate from Webber Wentzel. ​​​​​​On 4 January 2021 the South African Reserve Bank released Exchange Control Circular No. 1/2021 which provides for the long-awaited relaxation of the South African exchange control rules relating to loop structures and investments. As background, in 2020 the Minister of Finances announced in the 2020 Medium Term Budget Policy Statement that the prohibition on “loop” structures for exchange control purposes would be relaxed.As a result, the South African Reserve Bank has advised that from 1 January 2021 the full “loop” structure restriction has been lifted to encourage inward investments into South Africa; subject to the normal criteria applying to inward investments and reporting to the Financial Surveillance Department (FinSurv).

Sars is aware of your offshore assets

The days where Sars shuts its eyes to taxpayers offshore holdings are a thing of the past. Sars is finally utilising the Automatic Exchange of Information regime to pin down taxpayers who have not disclosed their offshore interests and numerous taxpayers have already received some alarming notices to this effect. The notice The notice informs the taxpayer that Sars intends to initiate a review of their tax affairs, based on information it received from 87 foreign jurisdictions through the Automatic Exchange of Information, regarding the offshore holdings of South African taxpayers. After recovering from the shock of the introductory words of the notice, Sars extends an olive branch and states that it wishes to engage with the taxpayer first, in the interests of administrative justice. The consolation is short-lived though because Sars then proceeds to direct a detailed and onerous information request at the taxpayer.

Loop structures are no longer prohibited in South Africa

From 1 January 2021, there is no longer a prohibition on loop structures in South Africa. This is a significant exchange control relaxation that will impact many structures for both corporates and individuals. A loop structure is essentially an arrangement whereby a South African resident invests in an offshore vehicle which, in turn, invests in South African assets.

How to navigate a transfer pricing outcome to a mutually unacceptable outcome

Author: Karen Miller, Consultant at Webber Wentzel. ​​Transfer pricing audits can be onerous, but taxpayers can achieve a more successful outcome by providing all information requested, anticipating areas of concern, and engaging openly with SARS The South African Revenue Services (SARS) recent issue of seemingly arbitrary questionnaires to multinationals on the provision or receipt of intra-group services has encountered much criticism and complaint. Although I agree that there appears to be a lack of coordination at SARS, with many taxpayers receiving these questionnaires while already under a transfer pricing audit, it demonstrates that SARS is serious about tackling the perceived use of transfer pricing to shift profits and contribute to base erosion in South Africa.

SARS, stand in line: How tax debts rank in business rescue

Author: Joon Chong, Tax Partner at Webber Wentzel. ​​​​​A company in financial distress may have a variety of outstanding tax debts at the commencement of business rescue. Besides capital amounts of tax due, there could also be tax returns for VAT, PAYE and income tax which are due and have not been submitted resulting in tax liabilities which are due and payable, but do not yet appear on the relevant statements of account. The late submission of returns will also result in 10% late payment penalties for VAT, PAYE and provisional taxes, and potentially 20% underestimation penalties for income tax, plus interest. There could also be administrative penalties imposed for non-submission of income tax returns.

Emigrating? National Treasury confirms 3 years wait to access preservation and RA lump sums

Author: Joon Chong, Partner & Wesley Grimm, Associate at Webber Wentzel. National Treasury proposes to introduce a 3-year rule to replace the financial emigration trigger which allows individuals to withdraw all amounts in their preservation funds and retirement annuity funds before retirement. The proposed amendment in the draft Taxation Laws Amendment Bill 2020 provides that pre-retirement individuals will only be able to access their preservation funds and retirement annuity funds after ceasing to be tax resident in South Africa for three years, as opposed to completion of the financial emigration process. Please refer to our article which discusses some of the issues of the proposed amendment.

Five points to consider when SARS owes you a refund

Authors: Andries Myburgh AND Simon WeberIts been a tough year. For taxpayers expecting long-outstanding refunds from the South African Revenue Service (SARS), even moreso. Earlier this year, SARS relished the fact that it had paid ZAR2.4 billion in refunds to taxpayers. It acknowledged that these refunds were a major cash injection into the economy at a very critical period. But SARS has generally been slow to refund amounts of excess payments due to taxpayers. The Tax Ombud, for instance, reported that in the 2018/2019 financial year, 24.43% of all complaints received by its office had related to delayed refunds the second highest number of complaints.

SARS decision to audit: Can it be taken on review?

Author: Louise Kotze. Administrative action (being the exercise of public powers and the performance of public functions by organs of state) may be taken on review by members of the public that have been adversely affected by a decision that is taken by any public authority. In the recent judgment of Cart Blanche Marketing CC and others v CSARS (26244/15) [2020] ZAGPJHC (31 August 2020), the High Court of South Africa had to determine whether the decision taken by the South African Revenue Service (SARS) to audit a taxpayer constituted administrative action and whether the said decision was capable of being reviewed under South African administrative law.

Voluntary disclosure programme: The High Court interprets the provisions of the Tax Administration Act

Author: Louis Botha. The Voluntary Disclosure Programme (VDP), contained in Part B of Chapter 16 of the Tax Administration Act 28 of 2011 (TAA), was introduced to encourage non-compliant taxpayers to come forward, and provide an account of their non-compliance with a view to regularizing their tax affairs. A valid disclosure and conclusion of a voluntary disclosure agreement with SARS shields the taxpayer from criminal prosecution and provides relief from the non-compliance and understatement penalties which would ordinarily have been imposed. Section 226(1) of the TAA provides that voluntary disclosure relief may be applied for by a person acting in their personal, representative, withholding or other capacity. Section 227 prescribes the requirements for a valid disclosure, and it must:

TLAB 2020: Section 45 Proposed rollover relief amendments tabled

Author: Louis Botha. The rollover relief provisions contained in Part III of the Income Tax Act 58 of 1962 (the Act) provide valuable commercial flexibility to corporate groups. This is achieved by enabling corporate groups to undertake certain transactions in a tax neutral manner and defer the tax costs, where such transactions would otherwise give rise to immediate income tax and/or capital gains tax costs. The intra-group transactions covered by the rollover relief provisions include the introduction of assets into a group company, transfer of assets between group companies, and the unbundling of indirectly held subsidiaries to a group holding company.