A number of advance tax rulings have recently been released by the South African Revenue Service (SARS) relating to the corporate tax roll- over relief rules contained in s41 to 47 of the Income Tax Act, No 58 of 1962 (Act). The most recent ruling in this regard is Binding Private Ruling No 168 (BPR 168), which was released on 17 April 2014. The facts in BPR 168 are relatively simple. Company A had acquired assets from company B in exchange for the issue of equity shares in company A in terms of an ‘asset-for-share transaction’ as defined in s42 of the Act.
Category: GAAR
Employee share incentive schemes new anti-avoidance measures
By Douglas Gaul, Tax Manager Grant Thornton Johannesburg Prior to 1 March 2014, dividends received from equity shares that were acquired by an employee as part of a share incentive scheme, were exempt from income tax (with some exceptions), even if these shares were held by a share trust on behalf of the employees. This situation has changed, and share incentive schemes must be reviewed to determine whether they still achieve the outcomes they were originally setup to deliver.
Loans disguised under share schemes are no more it is time to restructure
By Hawa Bibi Hoosen, Senior Tax Consultant, Grant Thornton Durban The revised section 8E and newly introduced section 8EA of the South African Income Tax Act (the Actť) deems certain dividends and foreign dividends received in cash by any person on or after 1 January 2013, to be income, taxed in the hands of the shareholder. This has resulted in significant changes in the tax planning of companies and individuals alike.
A horse that looks like a cow is still a horse – Hybrid debt instrument taxed as dividends
By Donatella Callaway The new anti-avoidance rules in respect of hybrid debt instruments, which were introduced by the Taxation Laws Amendment Act 2013 (TLA), became effective on 1 April 2014. The provisions were introduced to reduce the opportunity to create equity instruments that are artificially disguised as debt instruments.
Specifications for the reporting of information under FATCA, AEOI and domestic law
Pretoria 3 April 2014 – On 8 February 2013, the National Treasury and the South African Revenue Service (SARS) announced the start of negotiations with the US Department of the Treasury to enter into an inter-governmental agreement (IGA) with respect to the USA’s Foreign Account Tax Compliance Act (FATCA). The wording of a draft IGA has now been agreed upon and will be signed at Governmental level as soon as possible. When signed, the US Treasury will view South African financial institutions as being generally compliant with FATCA.
SARS welcomes Gauteng North High Court judgment on Mr Mark Krok
PRETORIA, 31 JANUARY 2014 – Judgment was delivered earlier today in the Gauteng North High Court confirming a preservation order granted to the South African Revenue Service (SARS) over the South African assets of Mr Mark Krok (the respondent). The respondents were also ordered to pay the costs of two counsel for SARS. This action is the first mutual collection of taxes action between South Africa and Australia in terms of Article 25A of a Double Taxation Agreement between the two countries and an initial step to combating non-payment of taxes and strengthening the working relationship between South Africa and Australia. SARS welcomes the Gauteng North High Court judgment as it confirms an important legal principle of mutual assistance and cooperation amongst revenue authorities in different countries. SARS believes the judgment will advance the capability of revenue authorities to combat cross border tax evasion and attempts to conceal Read More …
Value shifting arrangements still applicable to companies and triggering adverse tax implications
Author: Andre Lewis (Cliff Dekker Hofmeyer) The Eighth Schedule to the Income Tax Act, No 58 of 1962 (Act) contains particular anti-avoidance provisions dealing with so called value-shifting arrangements. The South African Revenue Service (SARS) Comprehensive Guide to Capital Gains Tax (Issue 4) (CGT Guide) indicates that value shifting involves the effective transfer of value from one entity to another without constituting an ordinary disposal for capital gains tax purposes. Without these specific provisions, the concern is that entities could manipulate the value of assets in order to obtain a capital gains tax benefit. In the Taxation Laws Amendment Act, 2012 (TLA 2012) a new s24BA of the Act was introduced to ensure that asset-for-share transactions take place for equal value.
You can run, but you can’t hide – Australia invokes DTA to secure an order over South African assets
Author: PwC International tax fugitives can run, but they are finding it increasingly difficult to hide. The author Somerset Maugham famously called Monaco a sunny place for shady people. In its early years as a British colony, Australia had something of the same reputation. Perhaps this is one of the reasons why several South African tax fugitives of recent years have chosen to take up refuge there. If so, Australia was a poor choice, for there is ample evidence of close co-operation between the Australian Tax Office (ATO) and SARS in harnessing to the full the provisions of the double tax agreement between the two countries entered into in terms of section 231 of the Income Tax 58 of 1962, read with section 231(2) of South Africa’s Constitution. The double tax agreement and a subsequent Protocol have been approved by the South African Parliament and published in the Government Gazette.
Section 24I(10A) – unrealised exchange gains and losses on loans between connected persons
Section 24I of the Income Tax Act (“the Act”) governs the income tax treatment of exchange gains or losses made in respect of both realised and unrealised foreign exchange transactions. Unrealised exchange differences on foreign denominated debts between connected persons have been subject to an array of income tax treatments over the past few years. Realisation of the exchange difference is triggered to the extent that the related debts have been repaid, setoff or settled in any other manner. Previous tax treatment of unrealised exchange differences Unrealised exchange differences that arose in respect of foreign denominated capital loans and advances between connected persons, before November 2005, are included, or
SARS eyes R10bn from tax evaders
Author: Jacques Pauw (City Press) The SA Revenue Service’s (Sars’) special investigations unit has in the past 10 years recovered, or is busy retrieving, an estimated R10bn in unpaid taxes from South Africa’s most notorious gangsters and tax evaders. Among their scalps is Economic Freedom Fighters (EFF) leader Julius Malema, Ponzi supremo Barry Tannenbaum and the who’s who of the underworld: Radovan Krejcir, Glenn Agliotti, Cyril Beeka, Lolly Jackson and Colin Stansfield. The men and women of Sars’ Tax and Customs Enforcement Investigations unit (TCEI) comprise old Sars hands and young graduates, with a sprinkling of former Scorpions, Hawks, police crime intelligence and National Intelligence Agency officers.