Binding Private Ruling No 191 (Ruling) was released by the South African Revenue Service (SARS) on 26 March 2015. The Ruling relates to the refinancing of debt through means of preference share funding. Having regard to the terms and conditions of the preference shares and the proposed cash-flows of the transaction, the applicant sought a ruling confirming that: the preference shares to be issued would not constitute ‘hybrid-equity instruments’ and ‘third-party backed shares’, as respectively defined in s8E(1) and s8EA(1) of the Income Tax Act, No 58 of 1962 (Act);
Tax News
Court addresses the deductibility of research and development tax incentives
In an attempt to encourage research and development in South Africa, s11D of the Income Tax Act, No 58 of 1962 (Act) was introduced to provide a research and development tax incentive which seeks to encourage and incentivise private sector investment in the research and development of scientific or technological activities. This particular tax incentive ensures that research and development activities are conducted within South Africa with the ultimate goal of indirectly stimulating the economy. Under the provisions of s11D of the Act, two types of tax deductions are allowable. First, the 150% deduction of expenditure incurred directly for research and development purposes and secondly, an accelerated depreciation deduction for capital expenditure incurred on any building or part thereof, machinery, plant, implement, utensil or article used for research and development purposes.
Retail Market Value of Right of Use of Motor Vehicle
On 28 April 2015, National Treasury published the Regulations dealing with the determination of the ‘retail market value’ of the right of use of a motor vehicle fringe benefit. A taxable fringe benefit arises where an employee is granted the right to use a motor vehicle, owned by his employer, for private use. Travelling between the employee’s residence and place of work is included in private use. The ‘determined value’ of a motor vehicle is ordinarily used to calculate the value of the private use. The retail market value must be used to determine the fringe benefit for vehicles acquired by an employer on or after 1 March 2015. Where the employer did not acquire the vehicle, for example,
FATCA – Approaching the 30 June 2015 Reporting Deadline
The United States of America (US) Congress enacted the Foreign Account Tax Compliance Act (FATCA) in 2010. FATCA aims to identify non-compliance by US taxpayers (including US taxpayers not residing in the US), which may previously have been concealed by using foreign financial accounts. FATCA imposes reporting obligations on US individual taxpayers (and certain individuals who own predetermined foreign financial accounts or offshore assets) and Foreign Financial Institutions (FFIs). In terms of FATCA, FFIs include South African banks and custodians, brokers, asset managers, private equity funds, certain investment vehicles, long-term insurers and other participants in the financial system.
Ability of SARS to request information from a taxpayer
Author: Peter Dachs (Tax Director at ENSAfrica) The South African Revenue Service (“SARS”) often sends out information requests in terms of section 46 of the Tax Administration Act. The question arises, in what circumstances SARS is permitted to ask such questions and what limits exist in respect of their powers? Relevant legislative provisions The Tax Administration Act has recently been amended by the Tax Administration Laws Amendment Act, 2014. This made certain changes to SARS’ powers to request information from a taxpayer.
The conundrum of the interplay between interest deduction limitations, interest withholding tax and double tax agreements
Author: Gerdus van Zyl (Tax Manager at ENSAfrica) The conundrum of the interplay between interest deduction limitations, interest withholding tax and double tax agreements The deductibility of interest has for years been a contentious issue and this has been reaffirmed with the introduction of section 23M into the Income Tax Act No 58 of 1962 (the “Act”) with effect from 1 January 2015. A further addition to the interest sphere of income tax is the introduction of interest withholding tax provisions in sections 50A to 50H, which came into effect on 1 March 2015.
Procedures governing objections and appeals
Author: Dr Beric Croome (Tax Executive at ENSAfrica) A taxpayer who receives an assessment from the Commissioner of the South African Revenue Service with which they do not agree, is entitled to lodge an objection against that assessment, and Chapter 9 of the Tax Administration Act, No. 28 of 2011 (“TAA”) regulates procedures relating thereto. Taxpayers also need to be mindful of the rules governing objection and appeal promulgated under section 103 of the TAA, which sets out in greater detail the steps to be followed in the objection and appeal process.
Taxation of interest – the complex web
Author: Michael Reifarth (Tax Executive at ENSAfrica) The number of provisions contained in the Income Tax Act, 58 of 1962 (“the Act”) which deal with tax treatment of interest income and interest expenditure have gradually increased over time. There are numerous aspects to be borne in mind by resident and foreign companies when considering the income tax and withholding tax implications which may arise in respect of transactions giving rise to interest income and interest expenditure. This article serves as an outline of certain provisions which should be given consideration when assessing the tax impact which interest income or expenditure may have on the position of a company.
VAT status of payments to welfare organisations clarified by the High Court
Author: Gerhard Badenhorst (Tax Executive at ENSAfrica) The SA Red Cross Air Mercy Service Trust (“the Trust”) approached the High Court for a declaratory order regarding the value added tax (“VAT”) status of payments it receives from the health departments of provincial governments to provide air rescue services as and when required. In its judgment delivered on 6 May 2015, the High Court found in favour of the Trust that the payments qualify for VAT at the rate of zero per cent. It was common cause that the Trust is a welfare organization and that its activities constitute welfare activities, being the rescue or care of persons in distress.
Which taxes apply to share loans?
Author: Magda Snyckers (Tax Director at ENSAfrica) The ability to enter into loans over listed shares is an important part of the financial industry as it offers sellers of listed shares the ability to comply with their obligations to deliver shares under a short sale contract. This ability could ensure that the sale of listed shares do not result in failed trades, provided the relevant shares can be sourced and borrowed prior to the seller having to deliver the shares. The intended change by the JSE limited to move to from a T+ 5 to a T + 3 settlement date in order to align with its settlement period with the international norm, reinforces the importance of the share lending industry. As a result of the shorter settlement period, the ability to borrow shares to settle trades will be paramount to ensure as little failed trades as possible.