In the recent case of KEN CC v CSARS, VAT2218 (VAT) [2023] ZATC CPT, the Tax Court (Cape Town) was tasked with deciding the dispute that had arisen between KEN CC (the vendor) and SARS concerning the vendors supply of services to foreign tour operators (FTOs) incorporated outside of South Africa. The vendor argued that it provided a single supply of tourism package assembly services to its non-resident FTO customers and that such services were zero-rated under section 11(2)(l) of the Value Added Tax Act, 1991 (VAT Act). This was on the basis that the FTO customers were not residents of South Africa and were not located in South Africa when the package assembly services were rendered. As part of its package assembly services, the vendor was appointed on behalf of the FTOs to contract with local third-party service providers for inter alia accommodation, guides, and greeting services. These local Read More …
Tax News
PAYE obligations for Foreign Employers
Following the 2023 National Budget on 21 February 2023, draft legislation was published on 28 July 2023 where it was proposed by National Treasury (NT) that all foreign employers would be required to register for Employees Tax (PAYE) and make the necessary payments to the South African Revenue Service (SARS) in respect of remuneration paid to any employees located in South Africa (SA). Many commentators made submissions and engaged in the stakeholder meetings with NT advising that this would significantly increase the administrative burden on foreign employers and potentially increase unemployment levels in SA as foreign employers would look to employ personnel in other countries.
Concept clarification: Zero-rated vs exempt supplies
Confused? Confusion is good. Its an excellent place to learn something new from. Henna Inam Although seemingly simple, the value-added tax (VAT) concept of zero-rated supplies vs exempt supplies is often confused and misused. The importance of distinguishing between these concepts is, however, crucial for purposes of determining the VAT liability of a vendor as well as a vendors entitlement to claim input tax deductions in respect of expenses incurred. The distinction between these concepts as well as the importance behind the distinction is unpacked below.
A game changer for taxpayer confidentiality: The Constitutional Court decides in a narrow 5-4 split decision
While public interest litigation is a common occurrence in South Africa, it seldom involves the area of tax law. However, pursuant to the Constitutional Courts judgment in Arena Holdings (Pty) Ltd t/a Financial Mail and Others v South African Revenue Service and Others [2023] ZACC 13, handed down on 30 May 2023, this might become a more regular occurrence and something the taxpayer and tax advisory community may see more of in future.
Capital vs Revenue: Swapping assets doesnt swap their nature
Section 42 of the Income Tax Act 58 of 1962 (ITA) is a cornerstone of the so called corporate rules in the ITA. Should certain conditions be met, this section provides roll-over relief to a taxpayer where that taxpayer exchanges an asset for shares in a company. At a glance Section 42 of the ITA provides that where a taxpayer holds an asset as a capital asset and disposes of this asset to a company in exchange for that company issuing the taxpayer equity shares. In order for section 42 to apply, the taxpayer must hold at least 10% of the equity shares in the company to which the taxpayer transfers the asset following the transaction. Section 42 also provides that where a taxpayer holds an asset as a capital asset, the company acquiring that asset in exchange for issuing shares to the taxpayer will acquire that asset as a Read More …
A sensible outcome: SARS ruling regarding special trusts
At a glance In Binding Private Ruling 384 (BPR 384) a question arose regarding the donations and capital gains tax consequences resulting from the beneficiary (applicant) of a special trust ceding his loan account against the trust, to that trust. SARS ruled that the cession by the applicant of his loan account to the special trust does not constitute a donation in terms of section 54 of the Income Tax Act 58 of 1962. SARS also ruled that the proceeds in respect of the cession of the loan account will be equal to the face value of the loan account. Consequently, no capital gain or loss will be realised by the applicant from the cession of the loan account.
At it again: Capital v revenue
The capital versus revenue debate is as old as tax law itself. The benefits, advantages or consequences of an amount being considered capital or revenue in nature has motivated taxpayers and the South African Revenue Service (SARS) alike to characterise amounts as one or the other. More often than not, the task of distinguishing between the two has fallen to the courts, as it did once again in the case of A Taxpayer v Commissioner for the South African Revenue Service (IT45638) [2023] ZATC 13, where judgment was handed down on 19 July 2023 (IT 45638). At a glance In IT 45638 ZATC CPT (19 July 2023) the Tax Court had to once again address how to determine if expenditure is capital or revenue in nature. In this instance the Tax Court found that a new company established to export grapes to a European retail chain through the taxpayer was Read More …
Tempers continue to cool: Are uniform allowances (for nurses) taxable?
The inclusion of any part of an allowance paid or payable in an employees taxable income is governed by section 8(1)(a) of the Income Tax Act 58 of 1962 (Act). At a glance It has recently been reported in the news that the Department of Health has agreed to pay a temporary allowance of R3,153 to nurses in the public sector to enable them to buy uniforms. From a tax perspective, this amount will potentially not be subject to tax. In terms of section 10(1)(nA) of the Income Tax Act 58 of 1962, where an employee is, as a condition of their employment, required while on duty to wear a special uniform which is clearly distinguishable from ordinary clothing, the value of such uniform, or any allowance provided in lieu of any such uniform, given to the employee by his employer, will be exempt from normal tax and therefore not Read More …
Tax Vertical mergers are back
Section 44 of the Income Tax Act 58 of 1962 (Tax Act) is one of the lesser used of the so-called corporate rollover relief rules, but is nevertheless one of the more hotly contested. Broadly, it provides for rollover relief from tax where two companies amalgamate to form one company, the other being liquidated.
Court Case – VAT agency and principals
The terms agent and agency are not defined in the Value Added Tax Act 89 of 1991 (VAT Act). The South African Revenue Service (SARS) has indicated in Interpretation Note 42 (IN 42) that it accepts that the common law relationship between the principal and the agent prescribes the value-added tax (VAT) consequences of this legal relationship. The general VAT rule is that where a person, acting as agent, supplies goods or services on behalf of a principal to a third party, the supply is deemed to be made by the principal and not the agent (section 54(1) of the VAT Act). Conversely, where a third-party supplier makes a supply to an agent acting on behalf of a principal, that supply is deemed to be made to the principal (section 54(2) of the VAT Act). In these instances, the principal and not the agent must account for VAT on the Read More …