Recently two interesting cases were reported in New Zealand and Australia. The cases related to whether certain expenses incurred by taxpayers in the energy sector were deductible for purposes of income tax. In those countries – like in South Africa – taxpayers may generally not deduct costs of a capital nature for purposes of income tax. In the case of Commissioner of Inland Revenue v Trustpower Ltd [2015] NZCA 253 the taxpayer (Trustpower) generated and sold electricity. The taxpayer was developing new projects. In that process it incurred expenses in applying for and obtaining consents under the Resource Management Act 1991. The consents related to land use, water and discharge.
Tax News
Exchange control: Constitutional Court ruling on SARB 10% exit charge to Shuttleworth
During a budget speech in 2003, the Minister of Finance imposed what was termed a 10% exit charge on monies leaving the country in excess of R750 000. In 2009, Mr Shuttleworth applied to the South African Reserve Bank (“the SARB”) for permission to transfer approximately R2.5 billion out of South Africa. The SARB granted Mr Shuttleworth permission to transfer this amount on condition that he paid the exit charge. Mr Shuttleworth paid the charge of approximately R250 million. He was later advised that the exit charge was a tax and had been imposed in a manner not permitted by the Constitution or the applicable statute.
Buying back shares from shareholders: dividends tax liability
Many issues arise when a company enters into an agreement to buy-back shares from its shareholders. If a company enters into an agreement with a particular shareholder to buy-back a certain number of ordinary shares, whereby the shares will be returned and cancelled on the effective date of the agreement, but the payment for the buy-back will be made in instalments over several years. This raises the issue of when liability to pay dividends tax will arise? Section 1 of the Income Tax Act No. 58 of 1962 (the “Act”) defines a “dividend” as inter alia: “Any amount transferred or applied by a company that is a resident for the benefit or on behalf of any person in respect of any share in that company, whether that amount is transferred or applied…as consideration for the acquisition of any share in that company…”
Proposed updates to the existing customs legislation
The major talking point within the South African Customs environment was the recent promulgation of the Customs Control Act, 2014 and Customs Duty Act, 2014 (“the Acts”) by parliament. There remains a lot of work outstanding before the Acts can be fully implemented and SARS are currently conducting extensive work surrounding the drafting of the Rules to the Acts and have published several batches for comment. The first phase of implementation is expected to “go live” in 2016 and will deal with Registration and Licensing. In terms of Section 931 and 933 of the Customs Control Act, an existing customs license and registration lapses 30 days after the “effective date”, unless the holder of that registration before the expiry thereof has submitted an application to the customs authority for a new registration. If the holder of the customs registration or license applies for a new license before the expiry, then the existing registration and license will continue until dispensed with. The “effective Read More …
Permanent establishments in South Africa
Recently, the Tax Court handed down judgment in the unreported case of AB LLC and BD Holdings LLC v the Commissioner of SARS (heard in February 2015) in which it had to determine whether or not an American company acting as an advisory group for the South African airline industry, had created a permanent establishment in South Africa. In making it’s decision, the court reviewed the Double Taxation Agreement (“DTA”) concluded between South Africa and the USA. A permanent establishment is created in terms of a double taxation agreement and outlines the activities that an enterprise of a resident state must conduct in a source state before the profits generated from those activities can be taxed in the source state. According to Section 5(1) of the Double Tax Agreement (and the Organisation for Economic Co-operation and Development Model Tax Convention), the term “permanent establishment” means:
Proposed repeal of the VAT zero rating under the National Housing Programme
In terms of section 11(2)(s) of the Value Added Tax Act No. 89 of 1991 (the “VAT Act”), payment made to vendors in respect of services supplied to a public authority or municipality, under a National Housing Programme, is subject to VAT at the rate of zero percent. In the Explanatory Memorandum to the draft Taxation Law Amendment Bill of 2015 (the “Draft Bill”), it is proposed that, due to administrative complexities relating to the implementation of section 11(2)(s) of the VAT Act, the zero rating provision will be abolished with effect from 1 April 2017.
Ex parte preservation orders: Krok v CSARS
This case was an appeal from the Gauteng Division of the High Court to the Supreme Court of Appeal (“SCA”) pertaining to the correctness of the granting of an ex parte preservation order applicationthat was brought against Mr Krok by the Commissioner of the South African Revenue Service (“SARS”) in terms of sections 163 and 185 of the Tax Administration Act No. 28 of 2011 (the “TAA”). The Court had to determine the question having regard to the application of the Double Taxation Agreement (“DTA” – as amended by a protocol) between South Africa and Australia.The DTA provided for the mutual assistance between the two jurisdictions for the collection of taxes.
Tax Court confirms importance of properly recording all matters relating to tax affairs
Author: Esther van Schalkwyk, Tax Consultant, BDO South Africa Section 102 of the Tax Administration Act places the burden of proving, amongst other things, that an amount or item is deductible or may be set-off, on the taxpayer. SARS, on the other hand, bears the onus in respect of, amongst other things, the facts on which SARS based the imposition of an understatement penalty. The Tax Court recently handed down judgment in VAT case no. 867, in which the Court once again confirmed the importance of the onus of proof in tax disputes.
South Africa has one of the broadest VAT bases on financial services, but is there room for the net to be widened?
Aurthur: Ferdie Schneider, National Head of Tax, BDO South Africa Valued-Added Tax (VAT) systems theoretically extend their bases as wide as possible to minimise economic distortionary effects so as to impact as little as possible on consumer choices. However, certain supplies of services still escape the VAT net, often due to their ‘difficult to tax’ nature. These typically include financial services. South Africa has one of the broadest (or most inclusive) VAT bases in the more than 160 jurisdictions that have VAT systems. Many VAT systems apply a broad brush approach when exempting financial services. Significantly, VAT systems often exempt ‘pure’ financial services and although intermediation or facilitation services could technically be taxed under a VAT system, these also often escape the VAT net as well.
Are Wealth taxes a likely probability for South Africa?
The Davis Tax Committee (DTC) consideration that a wealth tax for South Africans is not the universal solution to South Africa’s revenue needs. This is the view of Rhodes Business School Professor and DTC member Matthew Lester who was speaking at a BDO South Africa event last week. Professor Lester dissected the current taxation system within the country commenting on what is working, what isn’t and what changes need to be implemented for the future economic growth of the country.