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Tax News
No more VAT fat for developers
Cape Town – Unprepared property developers are in for a nasty shock when VAT relief designed to assist with cash flow comes to an end on the first day of 2015. BDO SA head of Tax Ferdie Schneider warned property developers that this will have a negative impact on their cash flow and are advised to prepare accordingly. “This VAT relief was implemented during a time of economic challenge in 2012 and applied to the temporary letting of residential property by property developers,” said Schneider. “In terms of the VAT relief, the temporary letting of residential property by a property developer was not subject to the normal change in use adjustments required by the VAT Act where goods or services on which a VAT credit was claimed are later applied for non-taxable purposes,” said Schneider.
Finance Minister Nhlanhla Nene to seek a broader tax base
By Wiseman Khuzwayo and Bloomberg Economists were bemused by an assertion by Finance Minister Nhlanhla Nene that South Africa needed to broaden its tax base in order to curb the budget deficit, as reported by Bloomberg yesterday. They said the tax base had shrunk due to weak economic growth. Nene is to deliver his first medium-term budget policy statement as finance minister next Wednesday. In it, he is expected to revise the fiscal deficit, inflation, gross domestic product (GDP) and net debt projections. The fiscal deficit projection given for 2014/15 is now expected to be closer to 5 percent of GDP.
PART B – OECD RELEASES FIRST PROPOSALS FOR FIGHT AGAINST TAX AVOIDANCE BY MULTINATIONALS
In Part A of this article we provided an overview of the Base Erosion and Profit Shifting (‘BEPS’) Action Plan and listed the 7 action points which were released by the OECD on 16 September 2014. In this second part of the article we provide an overview of the 7 action points. Action 1 of the BEPS Action Plan deals with the tax challenges of the digital economy. Consensus has been reached that the digital economy cannot be ring-fenced for tax purposes. The proposal includes a detailed analysis of the digital economy, business models, key features and resultant tax challenges of the digital economy. It was concluded that the collection of VAT in business-
PART A – OECD RELEASES FIRST PROPOSALS FOR FIGHT AGAINST TAX AVOIDANCE BY MULTINATIONALS
Author: BDO South Africa The Base Erosion and Profit Shifting (‘BEPS’) Action Plan originated from a need to address aggressive tax planning. The release by the OECD of the first 7 proposals of the 15-point Action Plan on 16 September 2014 is considered to be a milestone in the attempts to prevent the artificial shifting of profits through inter-company charges, the transfer of patent licensing rights and similar practices.
SARS Interpretation Note 75 Updated for Legislative amendments
Author: BDO – South Africa On 22 September 2014 SARS released Issue 2 of Interpretation Note 75 (‘IN75′). IN75 deals with the exclusion of certain companies and shares from a ‘group of companies’ as defined in section 41(1) of the Income Tax Act (‘the Act’) for purposes of the corporate rules. The issue that IN75 addresses is a contentious one which has given rise to much uncertainty in the past. Simply put, for the purposes of the corporate restructuring rules in sections 42 to 47 of the Act, the definition of a ‘group of companies’ is more restrictive than the general definition of ‘group of companies’ in section 1 of the Act.
The OECD/G20 Base Erosion and profit shifting project leaders shed light on the future of the international tax landscape
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.
Value Added Tax and entertainment
It is well-established that, in terms of section 17(2)(a) of the Value-added Tax Act, No 89 of 1991 (VAT Act), a vendor is not entitled to deduct any amount of input tax in respect of goods or services acquired for the purposes of ‘entertainment’, unless certain exceptions apply. The Tax Court recently gave judgment in the case of AB (Pty) Ltd v Commissioner for the South African Revenue Service (case no 1015, as yet unreported) concerning input tax deductions and entertainment expenses.
Tax Administration – Prescription and raising of additional assessments
Many taxpayers are generally aware that there is a prescription provision contained in our tax law. However, it is not always understood that the prescription provisions apply only if certain statutory requirements are met. In this regard it is not uncommon for SARS to assess taxpayers beyond the prescription period of three years. It is therefore necessary for taxpayers to understand the circumstances in which prescription will apply and also the relevant statutory provisions dealing with prescription. Section 79 of the Income Tax Act No. 58 of 1962 (the Act) contained the prescription provisions prior to the enactment of the Tax Administration Act No. 28 of 2011 (the TAA). These provisions are now contained in section 99 of the TAA.
Exempt Employment Income – Foreign Employment
In terms of current practice, remuneration derived from services rendered outside of South Africa is, subject to certain requirements, exempt from normal tax in South Africa in terms of section 10(1)(o)(ii) of the Income Tax Act, No. 58 of 1962 (the Act). The general rule is that income earned by a tax resident of South Africa from the rendering of services anywhere in the world will be included in ‘gross income’ as defined in section 1(1) of the Act. Notwithstanding the general rule above, certain exemptions are provided for, inter alia, in section 10(1)(o) of the Act in respect of remuneration which would likely have been subject to the deduction of employees’ tax under normal circumstances.