On 30 August 2016, the European Commission (EC) issued a press release in which it announced that Ireland, a member of the European Union (EU), gave illegal tax benefits to certain companies in the Apple group worth up to €13 billion. The EC found that Ireland had contravened the “EU state aid rules because it allowed Apple to pay substantially less tax than other businesses. Ireland must now recover the illegal aid”.
Author: Nyasha Musviba
Don’t be taken by surprise: Exchange control rulings and manual replaced
This Circular effectively replaces the current exchange control rulings and exchange control manual, which have been in existence since 2005, with two currency and exchanges manuals and two currency and exchanges guideline documents. The exchange control rulings are replaced by: the currency and exchanges manual for authorised dealers; and the currency and exchanges manual for authorised dealers in foreign exchange with limited authority (Manuals).
Cars, taxable supplies and input VAT – what says the law?
In our current day and age where convenience is key, it is common for businesses to deliver purchased goods to their clients. For such businesses, especially those who specialise in providing delivery and logistical services, it is important to note the applicable VAT considerations when purchasing a vehicle. In RTCC v Commissioner for the South African Revenue Service (VAT 1345) [2016] ZATC 5 (28 July 2016), the Tax Court had to determine whether input tax could be claimed by the taxpayer, a close corporation which carried on business in the courier industry, on the purchase of a vehicle that it used to make taxable supplies.
BEPS involving interest in the banking and insurance sectors
In October 2015, the OECD BEPS Action 4 Report on Limiting Base Erosion Involving Interest Deductions and Other Financial Payments (Report) was released setting out a common approach to address BEPS involving interest and payments economically equivalent to interest. The Report included a ‘fixed ratio rule’ which limits an entity’s net interest deductions to a set percentage of its tax earnings before interest, taxes, depreciation and amortisation (tax EBITDA) and a ‘group ratio rule’ which permits an entity to claim higher net interest deductions, based on the financial ratio of its worldwide group.
Funding for small and medium-sized enterprises
The Venture Capital Company (VCC) Tax Regime was introduced into the Income Tax Act 58 of 1962 (Act) to encourage investment into small and medium-sized enterprises (SMEs) and junior mining companies. Since its inception in 2008 and despite subsequent amendments in 2011, there has been limited take-up in the market, with only a handful of VCC funds having become fully funded and operational.
When debt and creativity meet – a recent Tax Court decision
In the current tough economic times, it is common for companies to consider alternative funding arrangements to fund their activities, which minimise their cash flow obligations to third parties in the short term, while also ensuring that they comply with the relevant tax legislation and utilise it to their advantage. One option to consider in this regard, is the creation of a loan account by a debtor in favour of a creditor. In CLDC v The Commissioner for the South African Revenue Service (VAT1247) [2016] ZATC 6 (5 September 2016), handed down by the Tax Court on 5 September 2016, the court had to deal with this issue and specifically the consequences of s22(3) of the Value-Added Tax Act. No 89 of 1991 (VAT Act).
OECD branches out – proposing BEPS Action 2 (neutralising the effects of hybrid mismatch arrangements) recommendations to tackle branch mismatch structures
On 22 August 2016 the OECD released Public Discussion Draft: BEPS Action 2 – Branch Mismatch Structures (Discussion Draft), which identifies and analyses mismatches that may arise through the use of branch structures. The Discussion Draft sets out preliminary recommendations for domestic rules, based on those proposed in the OECD’s Final Report on BEPS Action 2 – Neutralising the Effects of Hybrid Mismatch Arrangements (2015 Final Hybrids Report), which will hopefully neutralise the mismatches in tax outcomes arising from the exploitation of branch structures. To contextualise the Discussion Draft, it is necessary to summarise briefly the BEPS risks that BEPS Action 2 seeks to address.
Deferring tax by using unit trusts
Investors in shares are able to defer capital gains tax (CGT) using unit trusts. The deferral works as follows: Section 42 of the Income Tax Act, No 58 of 1962 (IT Act) allows a taxpayer to transfer listed shares to a company free of immediate tax consequences if certain requirements are met. One requirement is that the shares must be transferred in exchange for “equity shares” in the transferee company. If the requirements are met the taxpayer suffers no CGT or securities transfer tax (STT) in relation to the shares transferred. The taxpayer must account for CGT in future when it disposes of the equity shares it has acquired in exchange for the assets.
Alas, sometimes you can’t appeal
Author: Louis Botha (Cliffe Dekker). A certain question has been the subject of a number of recent court cases: Is an interim order or a decision which does not dispose finally of a case appealable? The Constitutional Court recently had to answer this question in two separate cases – one involving the changing of street names in Tshwane and the other involving the provisions of the National Credit Act, No 34 of 2005. The issue has now also reared its head within a tax context in the Supreme Court of Appeal (SCA). In Wingate-Pearse v CSARS (830/2015) [2016] ZASCA 109 (1 September 2016), a taxpayer wanted to appeal, among other things, the Tax Court’s decision regarding the onus of proof and the duty to commence leading evidence.
Tax and Exchange Control Alert – 7 October 2016
This week’s selected highlight in the Customs and Excise environment: Judgment was handed down by the Supreme Court of Appeal (SCA) in the matter of CSARS v Van der Merwe NO (598/2015) [2016] ZASCA 138 on 29 September 2016. A brief background of the case is as follows: a party (AA) imported certain goods into a bonded warehouse and as such deferred payment of duty and value-added tax (VAT) until clearance for home consumption. Subsequently, AA was to be wound up, and the liquidators demanded that the goods in the bonded warehouse be delivered to them without payment of duty and VAT in order for the liquidation process to continue (ie sale of the goods, share of the proceeds between the creditors, and so on). The South African Revenue Service (SARS) was of the view that the duty and VAT first had to be paid before delivery of the goods Read More …