Parties to sale agreements of immovable property should take great care when drafting the value-added tax (VAT) clauses. Consider the recent case of Lezmin 2358 CC v Tomeridian Properties CC and others [2015] JOL 33210 [GJ]. The facts of the case are complex. Put simply, the seller sold commercial immovable property to the buyer. The sale agreement, which went through a few permutations, stated that:
Tax News
VAT – Input tax and tax invoices
An attack by SARS backfired in an appeal in the Western Cape High Court when the Court delivered its judgment in South Atlantic Jazz Festival (Pty) Ltd v Commissioner for the South African Revenue Service [2015] ZAWCHC 8 (judgment delivered on 6 February 2015). The facts The appellant, a registered VAT vendor, had, for a number of years, been the organiser of an international jazz festival. In order to finance and facilitate the holding of the festival, it sought sponsorships from large enterprises. The enterprises undertook to provide cash, goods or services to an agreed value, in consideration for which they were given preferential advertising and branding rights. In the matter before the Court, the enterprises concerned were South African Airways, the City of Cape Town, Telkom and the South African Broadcasting Corporation.
Global tax surveillance
Even George Orwell, with his prophetic satirical insight, would have been confounded by the level of domestic and global surveillance that characterises our lives today. Indeed, given the objectives of the Organisation for Economic Development and Cooperation (OECD) Base Erosion and Profit Shifting (BEPS) Action Plan – to combat international tax avoidance by multinational enterprises (MNEs) and to secure government revenues – surveillance in the form of the inter-jurisdictional exchange of information and administrative assistance for tax collection purposes is not only justifiable but indispensable. Nonetheless, it behoves taxpayers to be alert to the rapidly expanding web of tax surveillance in which they operate.
Invalid assessments are subject to objection and appeal
Judgment was delivered by the Supreme Court of Appeal (SCA) in the case of Medox Limited v Commissioner for the South African Revenue Service on 27 May 2015. While under provisional liquidation, Medox Limited (Taxpayer) incurred an assessed loss during its 1996 year of assessment. The Taxpayer failed to submit a return for the 1997 year of assessment. In its returns for the 1998 and subsequent tax years, it neglected to carry forward the assessed loss from 1996.
Transfer pricing adjustments and withholding tax on interest
The South African Revenue Service (SARS) released Binding Private Ruling 192 (Ruling) on 28 May 2015, which dealt with withholding tax on interest and cross-border interest-free loans. The applicant was a non-resident and did not have a permanent establishment in South Africa. The co-applicant was a resident South African company, and a connected person in relation to the applicant. The applicant and co-applicant intended to enter into a loan agreement in terms of which the foreign applicant would advance money to the local co-applicant. The loan would be interest-free, unsecured, and payable on demand.
In trusts we trust
As parties to litigation, creditors often find themselves in a predicament where the individual they have a claim against has assets of insignificant value. The same individual may, however, be a trustee of a discretionary trust owning substantial assets. Faced with this difficulty, creditors are left with little choice but to ask a court to ‘go behind the trust’ in an attempt to find assets to execute judgment against. Allegations of a trust being a debtor’s ‘alter ego’ or ‘a sham’ often find their way into pleadings and the terms are frequently used interchangeably. To date, our courts have mostly shied away from declaring assets registered in a trust to be regarded as assets falling within the personal estate of one of the trust’s trustees. The recent judgment of Van Zyl and Another Nno V Kaye No and Others 2014 (4) Sa 452 (WCC) confirms this reluctance.
Interpretation of on demand guarantees
In the past, our courts have called payment guarantees issued by banks in commercial deals ‘the life blood of commerce’ which should not lightly be subjected to judicial interference. The Supreme Court of Appeal recently confirmed this principle in the case of the State Bank of India and Another v Denel SOC Limited and Others (947/13) [2014] ZASCA 212 but also emphasised that a demand made pursuant to a payment guarantee (which is independent of the underlying contract and is similar to an irrevocable letter of credit), must comply strictly with the terms and requirements set out in such guarantee. In the case, the Supreme Court of Appeal was asked to set aside an interdict granted by the South Gauteng High Court prohibiting Absa Bank from honouring its undertaking to pay on eight counter guarantees issued by Absa Bank in favour of the State Bank of India and the Bank Read More …
Public benefit organisations – the tax treatment of income derived from trading activities
Public benefit organisations (PBOs) play an important role in society as they relieve the financial burden on the state to undertake public benefit activities. Tax exemptions and deductions are available to assist PBOs achieve their objectives. The sole or main object of a PBO must be to conduct a public benefit activity. The PBO’s public benefit activity must, in accordance with s30 of the Income Tax Act, No 58 of 1962 (Act), be carried out in a non-profit manner and with an altruistic or philanthropic intent. Consequently, a PBO which carries on a public benefit activity with the sole purpose of making a profit will act contrary to the fundamental objective of a PBO. However, in a situation where a PBO, as part of undertaking a public benefit activity carries on a business undertaking or trading activity and earns income, is the PBO contravening the provisions of s30 of the Read More …
Withdrawal of rebate in respect of foreign taxes on service fees sourced in South Africa
With effect from 1 January 2012, the South African Government introduced s6quin of the Income Tax Act, No 58 of 1962 (Act) which provides for a rebate in respect of foreign taxes paid by a South African resident for services rendered within South Africa. In terms of the various treaties for the avoidance of double taxation that South Africa has with other countries, the country that is the source of the income generally has the sole right to tax that income. In respect of services, the country in which the services are rendered is generally understood to be the source of the income in relation to such services.
Changes to reportable arrangements previously listed in draft notices
On 16 March 2015, the Commissioner for the South African Revenue Service published Public Notice No. 212 in Government Gazette No. 38569 listing certain arrangements as ‘reportable arrangements’ for purposes of s35(2) and s36(4) of the Tax Administration Act, No 28 of 2011 (TAA) (Notice). With effect from the date of publication of the Notice, all previous notices issued under s80M(2)(c) and s80N(4) of the Income Tax Act, No 58 of 1962 (ITA) and s35(2) of the TAA were replaced.