Tax News

Authors: Jens Brodbeck, Jo-Paula Roman, Megan McCormack and Scott Salusbury. Transfer pricing is a self-assessment mechanism that aims to ensure that taxpayers identify all potential cross-border transactions, operations, schemes, agreements or understandings that have been entered into between connected persons (referred to as “potentially affected transactions”), to ensure that all such potentially affected transactions have been concluded and implemented on an arm’s length basis.  Ideally, where a taxpayer has been a participant to a potentially affected transaction, the taxpayer would ensure upfront that the potentially affected transaction has actually been concluded and implemented on an arm’s length basis.  However, where the terms and conditions of that potentially affected transaction differ from those that would have existed at arm’s length, the taxpayer is required, in terms of section 31(2) of the Income Tax Act, 1962 (“Income Tax Act”), to calculate its taxable income as if the terms and conditions of the Read More …

Author: Peter Dachs. Groups of companies often wish to restructure or rationalise their operations. This generally involves a transfer of companies and/or assets between various entities. There are many commercial drivers for such transactions. There are also a variety of ways in which the group can achieve its commercial goals. Depending on how the transactions are structured, the tax effects will be very different. There will be tax-efficient ways in which to achieve the group’s commercial goals and there will be tax-inefficient options which achieve the same commercial result. Against this background, it is then necessary to apply South Africa’s anti-tax-avoidance provisions. In simple terms, there are two sets of rules which need to be considered. First, the statutory anti-tax-avoidance provisions contained in section 80Al of the Income Tax Act; and second, the common law provisions relating to simulated transactions. In respect of the statutory rules, the principle that a Read More …

Authors: Anne Jenkinson and Annelie Giles. The South African Revenue Service (“SARS”) issued Binding General Ruling No. 48 (“BGR 48”) on 25 July 2018, which provides much needed clarification for residential property developers following the recent cessation of relief under section 18B of the Value-Added Tax Act, 1991 (the “VAT Act”). Background The development and sale of residential properties generally form part of a vendor’s VAT enterprise and are subject to VAT at 15% (14% prior to 1 April 2018). In contrast, the letting of a residential property or unit is exempt from VAT.  In principle, VAT incurred by a vendor on the cost of developing residential property for sale may be claimed as an input tax deduction (subject to the normal rules governing input tax deductions). However, where an asset that has been acquired for taxable purposes is applied, albeit temporarily, for exempt or other non-taxable purposes, the vendor Read More …

Authors: Jenny Klein and Sheryl Kunaka. The South African Draft Taxation Laws Amendment Bill, 2018 (the “Draft Bill”), which was published by the Minister of Finance on 16 July 2018, introduces many of the tax proposals announced in the 2018 Budget Review earlier this year.  Consistent with the general trend of combatting perceived areas of tax avoidance, among the tax changes contained in the Draft Bill are proposed amendments to the provisions in the Income Tax Act, 1962 (the “Act”) dealing with foreign trusts that hold the majority of the shares in an underlying foreign company. The Explanatory Memorandum on the Draft Bill states that the proposed amendments are intended to close the loophole in the current tax legislation regarding the use of trusts to defer tax or recharacterise the nature of income. The current position is that the controlled foreign company (“CFC”) rules in the Act do not apply Read More …

Authors: Joon Chong (Partner) and Arlia Abdul Alli (Candidate Attorney), Webber Wentzel. In the case of Mr A and XYZ CC v The Commissioner of the South African Revenue Service the Tax Court had to determine whether the conduct of the appellants was properly classified by SARS as ‘grossly negligent’ for purposes of imposing understatement penalties. The first appellant failed to submit income tax returns for the 2007 to 2010 tax years and value-added tax (VAT) returns for the 4/2006 to period 2/2010 VAT periods. The second appellant failed to submit income tax returns for the 2011 and 2012 tax years and VAT returns for the 9/2010 to 1/2013 VAT periods. These circumstances led to audits in the tax affairs of both taxpayers. The assessments which resulted from the audit included substantial penalties which were challenged in the appeal. During the course of the appeal, the Commissioner as the respondent Read More …

Authors: Joon Chong (Partner), Nina Keyser (Partner), Carryn Alexander (Associate), Nabeelah Edwards (Candidate Attorney) – Webber Wentzel. Where fixed monthly payments made up less than 75% of private company director remuneration, paragraph 11C of the Fourth Schedule to the Income Tax Act 58 of 1962 used to apply to require payment of employees’ tax for such directors on a monthly basis in respect of “deemed remuneration”. This “deemed remuneration” was a notional amount determined in terms of a formula in paragraph 11C. Paragraph 11C was repealed with effect from 1 March 2017. The draft 2018 Tax Administration Laws Amendment Bill, which was released for comment on 16 July 2018, now proposes to remove directors of private companies from the definition of “employee” in the Fourth Schedule (thus appear to be exempting directors of private companies from employees’ tax) with effect from 1 March 2019, in order to be in line Read More …

Authors: Wesley Grimm, Associate and Craig Miller, Director – Webber Wentzel. The taxation of real estate investment trusts (REITs) was discussed at the recent National Treasury Workshop on the 2018 draft Taxation Laws Amendment Bill, held on 4 September 2018, in Midrand. The correct tax treatment of certain anomalies, including the taxing of commercial lease deposits, was raised. Commercial lessors typically hold significant deposits from tenants, both in number and value. A view has emerged among certain officials at SARS that commercial tenant deposits comprise gross income where such amounts are not deposited into a separate bank account. It is trite law that a taxpayer may not be subject to tax on amounts received by them for the benefit of another. Though commercial lessors receive tenant deposits, such deposits are not received by them on their own behalf and for their own benefit. In the case of Omnia Fertilizer Limited Read More …

Authors: Wesley Grimm, Associate and Nirvasha Singh, Partner – Webber Wentzel. National Treasury’s proposal in the draft 2018 Taxation Laws Amendment Bill (2018 draft TLAB) to remove the taxable benefit concerning low or interest free loans granted to low-income employees for low-cost housing (the Proposed Amendment) was discussed on Day 2 of the recent National Treasury Workshop on the 2018 draft TLAB (Tax Workshop). Currently, if an employer provides a low or interest free loan to an employee for the acquisition of a low-cost house (ie a house valued at less than ZAR 450,000) instead of solely providing low-cost housing to a low-income earning employee (ie an employee earning less than ZAR 250,000 remuneration per annum), the low or interest free loan will be regarded as a taxable benefit in the hands of that low-income earning employee. National Treasury confirmed the Proposed Amendment at the Tax Workshop and stated that Read More …

Author: Berné Burger, Associate and Daniel Vale, Candidate Attorney at Webber Wentzel.  Cyber risks are evolving on a near daily basis posing countless threats to companies, and accordingly, directors need to stay abreast of legal developments to protect themselves and their companies in their fiduciary duties. The outline of such duties, in broad terms, is contained in legislation, common law and in the King IV Report on Corporate Governance for South Africa. Furthermore, duties which may not have been relevant to a director ten years ago may now have become relevant due to the development of technology and the associated risks. The Law The South African law prescribes duties that directors of companies must abide when acting and/or carrying out the functions of their office. The bulk of these duties have developed over the course of South Africa’s corporate and legal history and are enshrined in the common law. Despite Read More …

Author: Joon Chong, Partner, Webber Wentzel There have been a number of binding private rulings providing for the deductibility of contributions made by employer companies to share incentive trusts for the purpose of acquiring shares in the former. Although a binding private ruling is only binding on SARS and the applicant, published rulings can be relied on to provide an indication of the interpretation of law. In our interactions with SARS officials, we have found that this interpretation has generally been accepted, ie that contributions made to trusts for the purpose of acquiring shares in the employer company are deductible over the vesting period of the scheme. In S G Taxpayer v Commissioner for the South African Revenue Service, the Tax Court was faced with the issue of whether there was a sufficiently close connection between the contribution made by the employer/taxpayer to the trust in respect of the share Read More …