Author: Peter Attard Montalto, Emerging Markets economist, Nomura “South Africa has gone for austerity (-ish) and tax hikes to achieve the same projected consolidation path after a sharp downward revision in the growth outlook. This conservative fiscal stance can only be achieved politically given the argument that the Treasury has won around increasing space for grants to the poor and more left-wing microeconomic policies at the expense of tighter fiscal policy overall. “However, the Medium Term Budget Policy Statement (MTBPS) puts the likelihood of short-term downgrades from the agencies in more doubt, though in the medium run Moody’s (and others) will lower the rating. Eskom support lacks much of the required additional details, though the fabled debt-equity conversion has been raised along with equity asset sales, as expected.
Tax News
Venture capital companies: part 2 – the investors
Author: by Mansoor Parker Introduction This is the second in my series of articles on venture capital companies. In this article I look at the conditions relating to the investors. In particular, I look at the way the investors are permitted to hold their investments in the venture capital company (‘VCC’) in order to qualify for the tax concessions available to them.
The assumption of rehabilitation liabilities as consideration given on the acquisition of mining property and capital assets
Author: Andre Vermeulen – Tax Associate – ENSafrica During December 2013, SARS released a draft discussion paper in which it set out its application of the relevant tax law, in relation to the tax treatment of the purchaser and seller, with regard to the assumption of contingent liabilities as part settlement of the purchase price of assets acquired as part of a going concern. SARS states that the document was prepared in light of recent judgments delivered by local and foreign courts as well as numerous requests for clarity regarding the income tax treatment, of both the seller and the purchaser, in respect of the assumption of contingent liabilities as part settlement of the purchase price of assets disposed of and acquired.
Reportable arrangements – proposed replacement of the existing notices for purposes of sections 35(2) and 36(4) of the Tax Administration Act No. 28 of 2011
Authors: Robert Gad and Megan McCormack – ENSafrica Section 35(2) of the Tax Administration Act No. 28 of 2011 (the “TAA”) currently provides that an arrangement will be reportable, inter alia, if it is listed as such by the Commissioner for the South African Revenue Service (“Commissioner” or “SARS”) by public notice, and if the Commissioner is satisfied that the arrangement may lead to an undue tax benefit. Such inclusions are, however, subject to the provisions of section 36 of the TAA, which inter alia provides that the Commissioner may determine an arrangement to be an excluded arrangement by public notice if he is satisfied that the arrangement is not likely to lead to an undue tax benefit.
Pitfalls arising from the financial provision for mining rehabilitation
Author: Gerdus van Zyl – Tax Advisor at ENSafrica Mining companies generally make financial provision for rehabilitation by virtue of rehabilitation trusts or financial guarantees through a financial institution or lately, insurance policies. Although a deduction can be claimed for contributions to a rehabilitation trust and the income derived by such rehabilitation trust is exempt from tax, cash strapped mining companies in the current economic environment are finding it tough to contribute the required amount of cash to the rehabilitation trusts.
Foreign property investments: controlled foreign company issues
Authors: Gary Vogelman and Alexa Muller – ENSafrica In terms of the ordinary business practices of property companies, it is not uncommon for such companies to outsource property and asset management functions to third party property and asset managers. In this regard, to the extent that a South African property investment or development company or group (“SA PropCo”) may hold property investments or developments in offshore jurisdictions, SA PropCo would usually establish a subsidiary in the offshore jurisdiction concerned or some other holding jurisdiction to hold such investment (“Foreign SubCo”).
Objective of the BEPS Action Plan
Author: Lisa Brunton The Organisation for Economic Co-operation and Development (OECD) Base Erosion and Profit Sharing (BEPS) Action Plan, approved by the OECD Committee of Fiscal Affairs (CFA) in June 2013 and endorsed by the G20 heads of government in September 2013, was formulated to combat international tax avoidance by multinational enterprises (MNEs) through artificially shifting profits to low tax jurisdictions and eroding the tax bases of their primary high tax jurisdictions of operation. The objective of the BEPS Action Plan is to secure government revenues by ensuring that profits are taxed in the jurisdiction where the economic activities generating such profits are performed and where value is created.
Sale of business agreements: the implied restraint on canvassing customers
A recent decision of the Western Cape High Court has highlighted some critical considerations to be borne in mind when dealing with restraint of trade and non-solicitation clauses contained in, for example, sale of business agreements, if such sales include the goodwill of the business (Grainco (Pty) Ltd v Van Der Merwe and Another 2014 (5) SA 444 (WCC) (11 July 2014)).
South Africa 2015 Retirement Reform has been postponed
National Treasury’s recent announcement accompanying the draft Taxation Laws Amendment Bill, 2014 (the Bill) confirms the speculation around the postponement of the changes to the tax treatment of retirement savings. The changes were set to impact the tax treatment of contributions to retirement funds and require the annuitisation of provident fund pay-outs. The effective date, which would have been 1 March 2015, will now be delayed for one, or possibly, two years.
Small businesses owners can take a sigh of relief due to public participation by SAIT
Author: SAIT The Income Tax Act in its current form provides an array of tax incentives to incentivise the growth of small business corporations (‘SBC’). A small business corporation is basically, subject to certain exclusions, any close corporation, co-operative or private company of which all the shares are held by natural persons where the gross income of that close corporation, co-operative or private company does not exceed R20 million per year of assessment.