In its efforts to increase its income from tax revenue, the South African Revenue Service (SARS) sometimes applies legislative provisions in tax legislation in a manner that can best be described as tenuous. An example of this is apparent from the recent decision of the Supreme Court of Appeal (SCA) in CSARS v Kluh Investments (Pty) Ltd (115/2015) [2016] ZASCA 5 (1 March 2016).
Tax News
The complex world of hybrid debt instruments: a ruling applicable to non-resident issuers
On 1 March 2016, the South African Revenue Service (SARS) issued Binding Private Ruling 225 (Ruling), dealing with the dividends tax consequences for a non-resident issuer of hybrid debt instruments. By way of background, according to the Explanatory Memorandum on the Revenue Laws Amendment Bill, 2004 (Explanatory Memorandum) s8F of the Income Tax Act, No 58 of 1962 (Act) was introduced to draw a distinction between debt and equity for tax purposes. The section was further introduced to limit the deductibility of interest by persons other than natural persons in respect of hybrid debt instruments which are debt in legal form, but have sufficient equity features to place them clearly at the equity end of the debt/equity spectrum.
Special voluntary disclosure programme: is the carrot big enough or will taxpayers risk facing the stick?
A special voluntary disclosure programme (Special VDP) was announced on 24 February 2016 by the Minister of Finance in the 2016 Budget Speech, which is intended to provide further relief to qualifying persons in addition to the relief provided by the standard voluntary disclosure programme under the Tax Administration Act, No 28 of 2011 (TAA). On 12 April 2016, National Treasury (Treasury) released a media statement in which the public is requested to make formal submissions on draft legislation that sets out the legal framework of the Special VDP.
When are funds used for a ‘qualifying purpose’? a ruling regarding s8EA in the context of a BEE transaction
On 13 April 2016, the South African Revenue Service (SARS) issued Binding Private Ruling 228 (Ruling), which dealt with s8EA of the Income Tax Act, No 58 of 1962 (Act). Section 8EA is an anti-avoidance provision, which treats the yield on third-party backed shares as income instead of dividends in the hands of the holder.
Decision on the VAT treatment of the supply of student accommodation
An interesting judgment was recently delivered in the High Court (Gauteng Division, Pretoria) in the matter of Respublica (Pty) Ltd v Commissioner for the South African Revenue Service (as yet unreported). The matter concerned the value-added tax (VAT) treatment of the lease of a building to a university for purposes of student accommodation. Facts Respublica (Pty) Ltd (Vendor) owned an immovable property which it leased to the Tshwane University of Technology (University).
Taxing measures to curb trust fund tricks
Author: Maarten Mittner (BDlive). The tax efficiency of trusts may have taken a knock after the latest budget proposals, but trusts are likely still to remain viable wealth-preserving instruments. Some analysts have raised alarm at the possible negative consequences of the new proposals, but others remain optimistic. The days of using trusts to avoid tax or reduce a tax burden, however, may be over. Finance Minister Pravin Gordhan had harsh words for trusts in last month’s budget. In the review, he said the government’s aim was to keep the tax system progressive. Some taxpayers used trusts to avoid paying estate duty and donations tax, the review said.
Pay Now, Argue Later: Are There Any Exceptions To This Rule?
Author: Alan Lewis (Practitioner in Private Practice). We look at exceptions to SARS’ pay now, argue later rule and how they are being applied At first glance, it appears that the “pay now, argue later-rule” approach, which applies when SARS’ demands payment of all outstanding or assessed taxes, is set in stone. In terms of Section 164 (1) of Tax Administration Act (TAA), a taxpayer’s obligation to pay taxes, and SARS’ right to recover taxes, is not suspended by an objection, appeal, or pending the decision of the Tax Court. This means that, in most cases, a taxpayer’s pleas for an extension of their obligation to pay these taxes falls on deaf ears.
Prescription rules: When the clock stops ticking
Author: Kyle Mandy (PwC). In order to prevent the five year rule from being abused, there are certain exceptions. Section 99 of the Tax Administration Act regulates the prescription of tax periods. The most important circumstances in which SARS is barred from raising further assessments in relation to a tax period are those relating to the passing of time. As a general rule, SARS is time-barred from raising an assessment in relation to a tax period as follows:
Can SARS limit legal professional privilege?
Authors: Natalie Napier and Phillip Lourens (Hogan Lovells). New rules have come into effect for how legal professional privilege is regulated, we look at what effects they may have in practise. Amendments have been made to the Tax Administration Act (the TAA) by the insertion of a new section 42A with effect from 8 January 2016. Section 42A prescribes the procedures and requirements that must be followed by the taxpayer in order to claim legal professional privilege in respect of relevant material required by SARS, during an inquiry or during the conduct of a search and seizure by SARS.
Tax: No need to panic
Author: Claire Bisseker (Financial Mail) Judge Dennis Davis, who heads the Davis Tax Committee, believes that despite slow economic growth, SA will meet its revenue targets next year without any significant tax increases. Davis’s comments, made in an exclusive interview with the Financial Mail, should bolster the credibility of national treasury’s fiscal consolidation plans at a time when Moody’s is considering downgrading SA’s sovereign credit rating. His optimism stems mainly from his estimate that the new tax amnesty announced in the 2016 budget will raise R6bn-R10bn or even more within the next 12 months.