In the current pandemic effected economic climate, the announcement in the 2021 Budget (Budget) of the reduction in corporate income tax (CIT) from the current rate of 28% provides some relief to companies feeling the pinch of the economic downturn. CIT will be lowered to 27% for companies with years of assessment commencing on or after 1 April 2022 with a view to further CIT rate decreases over the medium term. Whilst still high compared to the global average CIT rate of 23,6%, the reduction seeks to drive growth and encourage investment in the country. In order to implement the reduction in CIT, government intends on reducing the number of tax incentives, expenditure deductions and assessed loss offsets currently available to companies in order to broaden the CIT base. The proposals by the Minister of Finance (Minister) relating to the limitation of assessed losses and excessive interest deductions have been Read More …
Tax News
Mboweni sticks to a realistic path in 2021/22 Budget
Authors: Wesley Grimm, Joon Chong, Cor Kraamwinkel from Webber Wentzel. South African Finance Minister Tito Mboweni delivered the 2021/22 Budget on Wednesday that treads a pragmatic path between over-spending and too much austerity, as the economy grapples with the impact of Covid-19 and lockdowns. The minister clearly listened to widespread calls to avoid raising taxes but also to allocate more funds to rolling out vaccines. Overall, it was an optimistic budget, but with some stings in the tail.
The High Court Limits Diesel Refund Claims for Mining Activities
Author: Prenisha Govender, Associate in the Tax Practice, Baker McKenzie Johannesburg. The recent High Court judgment Graspan Colliery v The Commissioner for the South African Revenue Services (8420/18) [2020] could have significant implications for mining operators and their ability to claim diesel refunds. The judgment dealt with the interpretation of Note 6(f)(iii) to Schedule 6 of the Customs and Excise Act, 1964 and the limitations with regard to what activities constitute primary production activities in mining, for the purposes of claiming diesel refunds. What is included in primary production activities in mining is defined in Note 6(f)(iii)(aa)-(vv) to Schedule 6. The list of activities included in Note 6(f)(iii) was considered non-exhaustive, following the Glencore Operations SA (Pty) Ltd v The Commissioner for the South African Revenue Service judgment. In this judgment, the court concluded that the word “include” in Note 6(f)(iii) goes beyond its primary meaning, and activities that qualify Read More …
Removal of Prohibition of “loop structures” – Dont Forget to Check the Tax Consequences
Authors: Denny Da Silva, Tax Specialist, Baker McKenzie in Johannesburg. In line with the South African Reserve Banks (SARB) undertaking to implement a new capital flow management system, changes began to come through in early 2021. In the first circular for the year, issued on the 4th of January 2021 (Circular), the SARB announced that with effect from 1 January 2021 the full “loop structure” restriction for private individuals and companies that are tax resident in South Africa had been lifted to encourage inward investments into South Africa.
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.