On 16 March 2015, the Commissioner for the South African Revenue Service (SARS) published Government Notice No. 212 in terms of s35(2) and s36(4) of the Tax Administration Act No, 28 of 2011 (TAA) specifically listing certain arrangements as so-called reportable arrangements (Notice). These listed arrangements are in addition to the arrangements that are already listed in s35(1) of the TAA. The effect of an arrangement being regarded as a reportable arrangement for purposes of s35 of the TAA read with the Notice is that,
Tax News
Binding Ruling – SARS ruling on preference share transaction
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);
Snapshot of new withholding tax on interest (WTI) – Are you liable?
Author: Ilsa Groenewald, Associate Director : Tax, BDO Durban Johannesburg, 18 May 2015 – High net worth individuals who hold local and foreign investments may not be aware of the new withholding tax on interest (WTI) introduced by SARS. WTI is a tax charged on interest paid on or after 1 March 2015 by any person to or for the benefit of a foreigner from a source within South Africa.
Tax Administration – Tax compliance status
Tax clearance certificates (TCCs) are issued by the South African Revenue Service (SARS) to, inter alia, validate the status of a taxpayer and confirm that such taxpayer’s tax affairs are in order. TCCs are, almost without exception, required for tender or bid applications, to reflect good standing, foreign investment and for emigration purposes. A TCC is only valid for one year from the date of issue in respect of a tender and/or good standing, provided the taxpayer remains compliant with SARS requirements.
Tax Administration – Interpreting statutory provisions
SARS has investigated, and in many cases raised assessments in respect of, share incentive schemes where the employee had accepted an offer to purchase shares at a fixed price prior to 26 October 2004, subject to delivery and payment taking place at a future date. The law relating to these schemes (known as deferred delivery schemes or DDS schemes) was amended with effect from that date. The Supreme Court of Appeal has now delivered its judgment in the matter of C: SARS v Bosch [2014] ZASCA 171 (19 November 2014) and provided clear guidance on the application of the Income Tax Act No. 58 of 1962 (the Act) in relation to deferred delivery share incentive schemes, where the employee had exercised the right to acquire the shares prior to 26 October 2004.
International Tax – Treaty shopping
The concept of base erosion and profit shifting (BEPS) has been much discussed at various international forums including the G20 Finance Ministers and Central Bank Governors meeting in July 2013 in Moscow as well as the G20 Heads of State meeting in September 2013. From a South African perspective, the Davis Tax Committee has been set up, inter alia, in order to address the issue of BEPS in a South African context.
Withholding taxes – Overview of current taxes
Over the past few years we have seen the introduction of various withholding taxes to the South African tax system. We set out below a high-level summary of the various withholding taxes that are levied in terms of the Income Tax Act No. 58 of 1962 (the Act), their rates and the withholding and reporting obligations. Apart from the dividends tax, these withholding taxes primarily apply to persons that constitute non-residents for South African tax purposes. However, tax residents should also take note since they could have a withholding obligation which may result in them having a secondary tax liability.
VAT on Letting of residential property
If an asset is acquired for the purpose of making vatable supplies in a VAT registered enterprise, the VAT input tax paid should be able to be claimed back from SARS. When the asset is sold, a portion of the selling price must be paid to SARS as output VAT. On the other hand, if an asset is acquired for the purpose of making VAT exempt supplies, the input tax cannot be claimed and the subsequent sale of such asset will not give rise to output VAT.
Current Tax Provisions on REAL ESTATE INVESTMENT TRUSTS (REITS)
The provisions in the Income Tax Act No. 58 of 1962 (the Act) pertaining to the taxation of Real Estate Investment Trusts (REITs) are contained in section 25BB and were introduced into the Act with effect from 1 April 2013. Deduction of “qualifying distributions” A REIT is a resident company which shares are listed on an exchange as shares in a REIT (as defined in the JSE Listings Requirements). Essentially, section 25BB allows for a “qualifying distribution” to be made by a REIT or a controlled company (a company that is a subsidiary of a REIT) for which the REIT or controlled company (that is a resident) gets a deduction from its income for the year of assessment to which that qualifying distribution relates.
Suspension of payment of tax due
When the Tax Administration Act No. 28 of 2011 (TAA) was promulgated on 1 October 2012 it introduced rather aggressive provisions empowering the South African Revenue Service (SARS) to collect tax more effectively, including the retention of the pay-now-argue-later principle. However, section 164 of the TAA allows a taxpayer to request a suspension of the obligation to pay an amount of tax or a portion thereof under an assessment where the taxpayer disputes or intends to dispute the liability to pay that tax under the dispute resolution provisions contained in Chapter 9 of the TAA. Previously, section 164(3) of the TAA provided that a senior SARS official may suspend payment of the disputed tax or a portion thereof, having regard to: