By Erich Bell, Senior Tax Consultant at BDO South Africa. SARS issued a draft interpretation note (DIN) in September 2015 on the tax implications of the assumption of contingent liabilities where a business is sold as a going concern. This article sheds some light on the assumption of contingent liabilities which specifically formed part of the purchase price relating to the acquisition of the business as a going concern.1 A purchaser can settle the purchase price for the acquisition of a business as a going concern by employing a combination of: cash consideration, assuming the seller’s debts, assuming the seller’s contingent liabilities, loan funding, or share issues.
Tax News
Tax Transparency – the Common Reporting Standard: Implications for South Africa
Globally, taxpayers are becoming more interdependent, and engage in cross-border financial activities with more regularity. With this, comes the need for enhanced co-operation and understanding across countries on issues such as tax administration and transparency, to curb tax evasion and ensure a fair allocation of taxes to tax jurisdictions. “The Common Reporting Standard (CRS) developed by the The Organisation for Economic Co-operation and Development (OECD), is a global standard for the automatic exchange of information relevant to tax. Over 50 jurisdictions have agreed to comply with the CSR, including South Africa, committing to exchange data in September 2017, and other jurisdictions will begin participating from 2018” states Ferdie Schneider, National Head of Tax at BDO South Africa.
OECD delivers international standard for collection of VAT on cross-border sales
Governments have taken an important step towards ensuring that consumption taxes on cross-border transactions are effectively paid in the jurisdiction where products are consumed, while minimizing the risks that uncoordinated tax rules distort international trade. The decision by representatives of more than 100 countries and jurisdictions to endorse the new OECD International VAT/GST Guidelines as the preferred international standard for coherent and efficient application of Value Added Tax/Goods and Services Tax to the international trade in services was one of the highlights of the annual meeting of the OECD Global Forum on VAT on 5-6 November, in Paris, France. See Statement of Outcomes here.
VAT Refund Administrator (“VRA”) – VAT Refund Claims
The VRA is an entity appointed by the South African Revenue Services (“SARS”) to administer VAT refund claims on movable goods purchased and exported from South Africa, by qualifying purchasers not registered for VAT. Qualifying purchasers generally include foreign businesses purchasing movable goods from South African suppliers on which VAT at 14% was charged, and where the foreign purchaser is responsible for exporting the goods from South Africa via road, rail, sea or air through a designated commercial port. Where movable goods of a qualifying purchaser are exported from South Africa by a cartage contractor, the qualifying purchaser is not required to present themselves at the port of exportation.
Lodging a Complaint against the South African Revenue Service
Author: Dr Beric Croome The Tax Administration Act No. 28 of 2011 (“TAA”) which took effect on 1 October 2012 created the Office of the Tax Ombud to deal with complaints against the South African Revenue Service (“SARS”) empowering that office to deal with complaints made by a taxpayer regarding a service matter or procedural or administrative matter arising from the application of the provisions of a tax Act by SARS. Before a taxpayer can lodge a complaint with the Office of the Tax Ombud, it is important that they have exhausted the internal complaints resolution mechanisms within SARS, unless there are compelling circumstances to do so. The TAA prescribes what constitutes compelling circumstances and those are not dealt with further in this article.
Transfer pricing drains us of tax blood
Author: Xolani Mbanjwa (Fin24) Transfer pricing by multinationals has cost South Africa an estimated R250 billion over three years and, with it, lost tax revenue. This is according to Sunia Manik, group executive for the large business centre at the SA Revenue Service (SARS), adding that it was being done through “service payments” made to overseas businesses, and was eroding the country’s tax base. Speaking about the new transfer pricing guidelines from the Organisation for Economic Cooperation and Development (OECD) at a seminar in Johannesburg this week, Manik said the figure included almost R80 billion in so-called management fees paid overseas from South Africa.
SARS uses banks to collect debt
Author: Amanda Visser (IOL) Several financial institutions, including banks, have accused the South African Revenue Service (SARS) of not following its own processes when collecting outstanding tax debt; instead using them as its first port of call. Statistics by the Banking Association of South Africa indicate banks each receive between 4 000 and 8 000 appointments on a monthly basis to collect tax debt on SARS’s behalf. This has increased from an average of 150 per month in previous years. The administrative cost per appointment amounts to R200.
VAT hike for SA ‘a matter of when’
Author: Roy Cokayne (IOL) An increase in VAT in South Africa was inevitable, said Citibank economist Gina Schoeman. The only question mark was about the timing of an increase in the VAT rate, she told a Ford breakfast yesterday. Schoeman stressed that South Africa had one of the lowest VAT rates in the world and one of the most efficient VAT collection streams. She said an increase in the VAT rate from 14 to 16 percent would add R30 billion to South Africa’s tax revenue and narrow the deficit by 4 percentage points. However, Schoeman said an increase in the VAT rate was hurtful to the consumer, which was the reason government was not keen on doing it as soon as most expected.
Retroactive application of a double tax agreement
On 16 October 2015, a Protocol amending the double tax agreement (DTA) between South Africa and Cyprus was published in the Gazette. In normal circumstances, the promulgation of a protocol does not cause much excitement; however, one of the articles in the Protocol raises unusual issues. Article IV contains two paragraphs: The first states that each of the states shall notify the other of the completion of the procedures required by its domestic law to bring the Protocol into effect, and that the Protocol shall come into effect on the date of receipt of the later of these notifications. The operative date in that respect was 18 September 2015.
The deductibility of a taxpayer’s losses incurred as a result of an ‘inherent risk’ of his trade
Where an accident or other mishap results in a taxpayer’s incurring an involuntary loss, a question can arise as to whether that loss is deductible for income tax purposes in terms of the general deduction formula laid down in section 11(a) of the Income Tax Act 58 of 1962 as having been incurred in the production of income. In Port Elizabeth Electric Tramway Co v CIR 1936 CPD 241,Watermeyer J expressed the underlying principle by saying that – ‘all expenses attached to the performance of a business operation bona fide performed for the purpose of earning income are deductible whether such expenses are necessary for its performance or attached to it by chance or are bona fide incurred for the more efficient performance of such operation provided they are so closely connected with it that they may be regarded as part of the cost of performing it.’ (Emphasis added.) Particular risks are inherent Read More …