A public notice (the “Notice”) was issued in the Government Gazette dated 16 March 2015 in terms of which the Commissioner for the South African Revenue Service lists arrangements which are listed as reportable arrangements in terms of section 35(2) of the Tax Administration Act No 28 of 2011 (“TAA”), and excluded arrangements in terms of section 36(4) of the TAA. The effective date of the Notice is 16 March 2015.
The Notice contains various changes when compared to the draft notices which were published for comment during 2014. Furthermore, as a result of the Notice being published, the exclusion which applied to arrangements entered into in instances where the tax benefit was not the main or one of the main benefits of the arrangement, has fallen away.
We highlight some of the important aspects of the Notice below.
Share buy back arrangements
- These provisions could apply to arrangements in terms of which a company buys back shares for an aggregate amount exceeding R10 million and issues shares within a 12 month period. There have been no substantial changes to this aspect of the Notice.
Hybrid equity and hybrid debt instruments
- In terms of paragraph 2.1 of the Notice, certain “hybrid equity instruments” and certain “hybrid debt instruments” may now also constitute reportable arrangements.
- The Notice provides that “hybrid debt instruments” are reportable if the prescribed period in terms of section 8F of the Income Tax Act had been 10 years. However, the current provisions of section 8F do not contain a prescribed period (although section 8F previously did have a prescribed period). It will be interesting to see how this will be interpreted.
Contributions / payments to non-resident trusts
- In terms of paragraph 2.3 of the Notice, the R10 million threshold will be determined with reference to all contributions or payments made before or after the date of publication of the Notice (our emphasis).
Acquisition of controlling interest in a company with an assessed loss
- In terms of paragraph 2.4 of the Notice, the threshold relating to assessed losses has been increased from R20 million to R50 million.
- A further inclusion in relation to the arrangements contemplated in paragraph 2.4 of the Notice is the indirect acquisition of a controlling interest in a qualifying company via an acquisition of a controlling interest in another company.
The following arrangements which were included in the draft notice are not included in the Notice-
- Arrangements in terms of which certain service fees are paid by a resident to a non-resident.
- Arrangements in terms of which certain foreign tax rebates are taken into account.
- It has been clarified that the R5 million threshold is to be determined in aggregate with reference to the position of all participants to the arrangement.