Author: Ben Strauss (Cliffe Dekker Hofmeyr) Often parties to a sale of shares agreement agree to an ‘earnout’ or ‘agterskot’ clause: a provision that part of the price will be paid in future if certain conditions are met. For example, the parties may agree that, while the seller must transfer ownership of all the shares to the purchaser at the time of the sale, the purchaser will pay a part of the purchase price only if the company reaches specified financial targets in future.
Author: Nyasha Musviba
Ruling on leasehold improvements
Author: Heirich Louw (Cliffe Dekker Hofmeyr) The South African Revenue Service (SARS) released binding private ruling 177 (Ruling) on 31 July 2014. The Ruling concerned a lease and a sublease and SARS was asked to rule on the income tax consequences for, inter alia, the landlord in circumstances where there is an obligation on the sub-lessee to make improvements to the land.
Disposals by share incentive trusts
The South African Revenue Service (SARS) issued Binding Private Ruling 174 (Ruling) on 29 July 2014. The applicant was a share incentive trust established by a local company for the benefit of its employees in senior management. It was proposed that the company would make cash contributions to the trust and the trust would use the cash to purchase shares in the company on the open market. In terms of the incentive scheme, the trust would award the shares in tranches to the employees over a period. When the shares vest, the trust would transfer the shares to the employees.
VAT – Importation of goods
The requirements for claiming VAT when importing goods to South Africa have always been contentious and the affected VAT vendors are often unsure about the documentary evidence they need to retain to survive a SARS VAT audit. Even SARS offices interpret or enforce the provisions of the VAT Act differently. For example, some allow the clearing agent’s invoice as proof of import and others accept payment to the clearing agent as proof that VAT has been paid. Even the timing for claiming the input tax deduction has been disputed. These uncertainties have resulted in many VAT vendors receiving significant assessments, penalties and interest charges from SARS.
Request for "relevant material" by SARS
The South African Revenue Service (SARS) has extensive powers in terms of the Tax Administration Act No. 28 of 2011 (the TAA). In terms of section 46(1) of the TAA, SARS may, for the purposes of the administration of a tax Act in relation to a taxpayer, require such taxpayer or another person (third party) to submit relevant material that SARS requires within a reasonable period. SARS may require such relevant material to be submitted orally or in writing.
Legal professional privilege
On 17 March 2014 judgment was handed down in the Western Cape High Court in the case of A Company and two others v Commissioner for the South African Revenue Service (case no 16360/2013 – as yet unreported). The facts were briefly as follows: The applicants were three companies in a group of companies. In the course of conducting an audit of the applicants’ tax affairs, the South African Revenue Service (SARS) directed a request for relevant material at the applicants in terms of section 46 of the Tax Administration Act, No 28 of 2011(the TAA).
Tax Administration Act – Tax clearance certificates
Taxpayers who wish to tender for State contracts do not qualify unless they can produce a valid tax clearance certificate. The refusal, withdrawal or non- renewal of such a certificate would consequently be the death knell of any business whose lifeblood is the securing of state tenders.
Binding Private Ruling – Buy back of shares
An interesting advance tax ruling was released by the South African Revenue Service (SARS) on 12 March 2014. Binding Private Ruling 164 (Ruling) deals with the buy-back of ordinary shares by a company at an amount in excess of the market value of the shares.
Collective investment schemes
Section 25BA prior to 1 January 2014 Prior to the amendments contained in the Taxation Laws Amendment Act No. 31 of 2013 (the TLAA), a Collective Investment Scheme (CIS) was taxed on a semi-flow through regime in terms of section 25BA of the Income Tax Act No. 58 of 1962 (the Act).
Changes to payroll tax forms submission to SARS
Manually completed payroll tax forms dropped-off at a SARS branch or posted, will no longer be accepted from 25 August 2014. The forms impacted include: Monthly Employer Declaration (EMP201) Employer Reconciliation Declaration (EMP501) Employee Tax Certificates [IRP5/IT3(a)] Tax Certificate Cancellation Declaration (EMP601) Reconciliation Declaration Adjustment (EMP701). Top Tip: An exception will be made for employers with a maximum of five IRP5/IT3(a)s. In such cases the employer can still go into a SARS branch where an agent will help them capture these IRP5/IT3(a)s and the EMP501.