Authors: Bernard du Plessis and Peter Dachs (ENSafrica). The Taxation Laws Amendment Bill 2016 has been released for public comment. It introduces various interesting amendments to South Africa’s tax law, which include the following: Use of trusts In circumstances where an interest-free loan has been advanced to a trust by a connected person (which includes a beneficiary or a relative of a beneficiary), it is proposed that a market-related rate of interest (currently 8%) is deemed to be paid on that loan. This deemed interest will not be tax deductible in the hands of the trust but will be taxable in the hands of the lender and will not qualify for an interest exemption.
Author: Nyasha Musviba
Transfer pricing – Consequence of year end adjustments
As all multinational groups of companies should be aware transfer pricing is a significant tax issue when operating cross border in multiple tax jurisdictions. Transfer pricing legislation exists in most established tax regimes and is becoming more and more prevalent in countries previously considered less tax sophisticated. In the context of South Africa, transfer pricing legislation has been present in the Income Tax Act, 1962 (the Act) for a number of years and was significantly revised in 2012 to better align with the Transfer Pricing Guidelines issued by The Organisation for Economic Cooperation and Development (OECD).
Transfer pricing – Arm’s length principle
Using South Africa as our departure point, section 31 of the Income Tax Act, 1962 (the Act) provides that the tax payable in respect of international transactions is to be based on the arm’s length principle. In brief, section 31 of the Act provides that: where any transaction, operation, scheme, agreement or understanding (hereinafter, transaction) which constitutes an ‘affected transaction’ has been concluded between connected persons;
Tax administration – Prescription
From time to time, our courts are called upon to remind public officials that compliance with the requirements of provisions in legislation is necessary to enable them to enforce the powers entrusted to them. The requirements are in place to enable the public to understand the reasons for the administrative action and to determine whether the action is compliant with the law.
Crowdfunding and tax – two’s company, three’s a crowd
Authors: Michael Reifarth and Yani van der Merwe (ENSafrica). There has been a rapid expansion of the crowdfunding industry during the last couple of years where businesses and entrepreneurs use crowdfunding platforms to promote their business ideas and to obtain funding from the public to finance their ventures. Although there are advantages and disadvantages to a crowdfunding arrangement in comparison to traditional funding arrangements, one constant factor applicable to both alternatives is that the transactions between the recipient and the provider of funding will, at all times, be subject to the provisions of the Income Tax Act, No. 58 of 1962 (the “Act”). In this article, we briefly consider some of the possible South African tax implications that may arise pursuant to the utilisation of the various types of crowdfunding that have lately been gaining traction in South Africa.
OECD Request for Input on the development of a multilateral instrument to implement tax treaty BEPS measures
Author: Elsabe Strydom (ENSafrica). The Organisation for Economic Co-operation and Development (“OECD”)/G20 Base Erosion and Profit Shifting (“BEPS”) Project identified 15 actions based on the following three key themes, being: the introduction of coherence in the domestic rules that affect cross-border activities; the reinforcement of substance requirements in the existing international standards; and the improvement of transparency and certainty. In particular, the final BEPS package, released on 5 October 2015, represents a substantial overhaul of the international tax rules and once the measures become applicable, it is expected that profits will need to be reported where the economic activities that generate them are carried out and where value is created.
The VAT implications of interest-free credit
It is the long-standing practice of traders and service providers to grant customers extended payment terms for the goods or services they supply as a means to enhance turnover. Where the credit provided is interest-free, the question that arises is whether the provision of such credit impacts on the entitlement of the supplier to claim input tax for value added tax (“VAT”) purposes.
Africa tax in brief
Author: Celia Becker (ENSafrica). BOTSWANA: Exchange of information agreement with Isle of Man enters into force The Botswana/Isle of Man Exchange of Information Agreement (2013) entered into force on 5 March 2016 and generally applies from 5 March 2016. KENYA: Stamp duty on nominal share capital Following publication of Legal Notice No. 60 of 2016 dated 12 April 2016, the initial nominal share capital of a limited liability company is now exempt from stamp duty. MALAWI: 2016/17 Budget presented to parliament On 27 May 2016, the Minister of Finance, Economic Planning and Development presented the Budget for 2016/17 to parliament.
In vino veritas: an important case for the wine farming industry
The South African wine industry is internationally renowned for the quality of wine it produces. From a tax perspective, a specific tax dispensation applies to income derived by a person from “pastoral, agricultural or other farming operations” as contemplated in s26(1) of the Income Tax Act, No 58 of 1962 (Act). To the extent that a person’s taxable income is derived from such operations, the First Schedule to the Act will apply. We previously discussed s26(1) and the First Schedule in our Alert of 8 April 2016: The Kluh-ed up taxpayer wins – a decision on s26 of the Income Tax Act.
Commercial property: three ways to save tax
The effective rate of capital gains tax (CGT) has increased dramatically in recent years. When CGT was introduced in South Africa in 2001 the effective rate for companies was 15%. The effective rate is now 22.4%. So, since 2001 the effective rate of CGT for corporates has increased by nearly 50%. In addition, when a company distributes a profit after tax to its shareholders, they pay dividends tax at a rate of 15% (unless the shareholders qualify for an exemption, or a reduced rate).