In advising on international corporate transactions we often advise taxpayers that directly, or indirectly through a foreign subsidiary, dispose of their equity shares in foreign subsidiaries or equity investments resulting in a taxable capital gain. What looks like a simple transaction, capable of being executed in a tax neutral manner, could very easily result in adverse tax implications for the disposing shareholder.
Tax News
New tax dispute resolutions promulgated
The new rules governing objections and appeals were promulgated under section 103 of the Tax Administration Act No. 28 of 2011 (‘TAA’) in Government Gazette 37819 on 11 July 2014. These rules replace the rules which were promulgated under section 107A of the Income Tax Act and for all practical purposes the new rules took effect on 11 July 2014 and will therefore regulate the resolution of tax disputes going forward.
Uncertainty to greet tax on multinationals’ profits
Author: Amanda Visser (BDlive) Businesses globally are facing a period of great uncertainty following the publication of seven action plans that countries will be implementing in the next year to address the shifting of profits by multinationals in efforts to reduce their tax liabilities and depriving countries of much needed revenue. Jeffrey Owens, former head of the Organisation of Economic Co-operation and Development (OECD) Centre for Tax Policy and Administration, anticipated a “tsunami” of tax disputes between multinationals and tax authorities because there was certainly going to be inconsistencies in the application of the steps announced this week.
OECD releases 2014 BEPS deliverables
Author: Osler Hoskin & Harcourt LLP , Canada, Global On September 16, 2014, the Organisation for Economic Co-operation and Development (OECD) released its first seven of 15 deliverables under the OECD/G20 base erosion and profit shifting (BEPS) project (the 2014 BEPS Package). The 2014 BEPS Package arises from the Action Plan on Base Erosion and Profit Shifting (the BEPS Action Plan), which contains 15 specific recommendations for international tax reform (see our Update on the BEPS Action Plan, “OECD/G20 International Tax Reform: Potential Impact on Canadian Companies,” July 19, 2013). A summary overview of the 15 recommendations is included at the end of this Update.
Complaints procedure for the Office of the Tax Ombud
The Minister of Finance, Pravin Gordhan, officially launched the Office of the Tax Ombud (‘OTO’) on 7 April 2014. Judge Bernard Ngoepe was announced as the Tax Ombud in October 2013. The OTO has recently released an informal guide in print form, which summarises the complaints procedure to be followed by taxpayers. The guide can be obtained from their offices and other government offices.
Recent Developments Regarding Section 23M of the Income Tax Act
Section 23M is set to become effective from 1 January 2015. Its intention is to limit the deduction of interest where such interest is paid to a connected person, which is not subject to tax in South Africa on the interest received. In the majority of cases, non-residents are not subject to normal tax in South Africa on interest received from a South African source due to the exemption provided in section 10(1)(h) of the Act. However, the withholding tax on interest paid to non-residents is to become effective from 1 January 2015. The intention would appear to be that if the interest received is not taxed in South Africa at all i.e. neither subject to normal tax in South Africa nor the withholding tax on interest (for example because a double taxation agreement reduces the withholding rate to zero per cent), then the section 23M limitation needs to be Read More …
Recent Developments Regarding Tax Free Savings Accounts
Author: BDO In order to encourage savings, in the 2012 Budget speech the Minister of Finance proposed the introduction of tax free savings accounts. The idea was that individuals could invest up to R30 000 per annum into such accounts, with an overall lifetime ceiling of R500 000. Returns generated in the account would be tax free, whether by way of income or capital gains. The individual could withdraw the amount invested at any stage on a tax free basis.
An update on the streamlining of the VAT registration process
The Taxation Laws Amendment Act, No. 31 of 2013 (TLAA) introduced legislative amendments aimed at streamlining the Value-Added Tax (VAT) registration process as contained in the Value-Added Tax Act, No. 89 of 1991 (VAT Act). In the 2013 Budget, the Minister of Finance, Pravin Gordhan (Minister) indicated that there would be efforts to reorganise the VAT registration process to ease the burden of complying with the requirements for registration. This culminated in amendments being made to s23(3)(b)(ii) and s23(3)(d) of the VAT Act, respectively.
Keeping the lid on Pandora's Box
If only all judgments were formulated with the elegant reasoning and perspicacity of the judgment delivered by Rogers J in the Western Cape Division of the High Court in Kluh Investments (Pty) Ltd v Commissioner for the South African Revenue Service (case number A48/2014, as yet unreported) on 9 September 2014. The appeal was against the dismissal of an appeal brought in the tax court against an additional assessment levied by the South African Revenue Service (SARS) in respect of the 2004 – year of assessment. SARS added an amount of R110 million to the appellant’s taxable income on the basis that the gross income giving rise to such taxable income had accrued to the appellant during its 2004 year of assessment on disposal of a plantation as contemplated in Paragraph 14 of the First Schedule to the Income Tax Act 58 of 1962 (Act).
Proposed changes to secondary transfer pricing adjustment
National Treasury and the South African Revenue Service (SARS) recently released the draft Taxation Laws Amendment Bill 2014 (Bill). One of the key proposals in the Bill is to change the secondary transfer pricing adjustment mechanism from a deemed loan to a deemed dividend. Transfer pricing is a concern because, where for example a local party undercharges a foreign connected party for goods or services, or where the foreign connected party overcharges the local party, the parties to the transaction can effectively manipulate their income and taxable profits can be shifted from South Africa to other jurisdictions.