The list of reportable arrangements was extended by the South African Revenue Service in a notice (SARS Notice) published on 16 March 2015 in terms of s35(2) and s36(4) of the Tax Administration Act, No 28 of 2011 (TAA). The SARS Notice has caused some consternation. However, if one considers the obligation to notify SARS of reportable arrangements, the effect of the SARS Notice is perhaps not as far-reaching as first appears.
Category: GAAR
Securities lending arrangements
A securities lending arrangement entails a lender advancing shares to a borrower to enable such borrower to on-deliver the marketable security in terms of a sale or on-lending transaction. The borrower is obliged to deliver the equivalent marketable security (in kind, quality and quantity) to the lender within a specified period of the original advance and to compensate the lender for any distributions to which he would have been entitled to during such period.
Base erosion and profit shifting – a South African perspective
Author: Peter Dachs – ENSafrica The concept of base erosion and profit shifting (BEPS) has been debated at various international forums following discussions at the G20 Finance Ministers and Central Bank Governors meeting and the G20 Heads of State summit in Russia last year. The Organisation for Economic Co-operation and Development’s (OECD) BEPS Action Plan provides for 15 actions to be completed in three phases by December 2015.
Landmark judgement in Supreme Court of Appeal upholds deferred delivery share scheme
In its first and much anticipated judgement in relation to the interpretation of section 8A of the Income Tax Act, and to Deferred Delivery Share Schemes, a full bench of the Supreme Court of Appeal unanimously upheld the taxpayers’ contentions as to the tax effects of a so-called Deferred Delivery Share Scheme. In this test case, the Court rejected the main contentions by the South African Revenue Service (“SARS”), that the share scheme was subject to various conditions, or alternatively that it was a simulation. The taxpayers’ argument that the exercise of an option agreement constituted the sole point at which tax could be levied in terms of the then applicable tax law, was upheld. This confirms the interpretation which had been accorded to section 8A of the Income Tax Act by many tax practitioners over the years as well as (until recently) SARS itself.
Interest-free shareholder loans
Author:Liesl Kruger – Tax Consultant – ENSafrica Loans between companies and their shareholders, or other group companies are a common method of providing finance in the South African corporate environment. Loans of this nature may, however, give rise to tax implications in the hands of the lender or the recipient, and careful consideration should therefore be given to these transactions.
Draft Responses by National Treasury on the Excessive Interest Limitation Rules
On 15 October 2014, National Treasury and SARS stated in a Response Document (‘Document’) presented to the Standing Committee on Finance (‘SCoF’) that the ‘excessive interest limitation rules’ are in line with international practice and measure up well in light of current discussions at the OECD. Sections 23M and 23N were introduced in the 2013 Taxation Laws Amendment Act as measures to limit the amount of interest that a company can deduct, which the Document describes as a more reasonable level since debt finance was used to create opportunities for base erosion in the past.
Important changes to section 23M of the Income Tax Act (ITA)
The Taxation Laws Amendment Bill (TLAB), tabled in parliament on 22 October 2014, contains welcome changes to the provisions of section 23M of the Income Tax Act (ITA), due to come into operation on 1 January 2015. Section 23M provides for a limitation on the amount of interest which can be deducted on loans sourced from a person that is in a ‘controlling relationship’ with the debtor where the interest is not subject to tax in the hands of the person to which it accrues.
Reportable arrangements – proposed replacement of the existing notices for purposes of sections 35(2) and 36(4) of the Tax Administration Act No. 28 of 2011
Authors: Robert Gad and Megan McCormack – ENSafrica Section 35(2) of the Tax Administration Act No. 28 of 2011 (the “TAA”) currently provides that an arrangement will be reportable, inter alia, if it is listed as such by the Commissioner for the South African Revenue Service (“Commissioner” or “SARS”) by public notice, and if the Commissioner is satisfied that the arrangement may lead to an undue tax benefit. Such inclusions are, however, subject to the provisions of section 36 of the TAA, which inter alia provides that the Commissioner may determine an arrangement to be an excluded arrangement by public notice if he is satisfied that the arrangement is not likely to lead to an undue tax benefit.
Tax Administration – Reasonable care required for SARS to waive tax penalties
Judgment was handed down in the case of Harding v Revenue and Customs Commissioners [2013] UKUT 575 (TCC) in the Upper Tribunal (Tax and Chancery Chamber) on 15 November 2013. The case revolved around the question of whether an omission by a taxpayer of a severance payment in his tax return amounted to a ‘careless mistake’ in terms of the United Kingdom Finance Act, 2007 (UK Finance Act). Background The Appellant held a senior position in a company forming part of a leading accounting practice. He entered into a compromise agreement with his employer whereby his contract of employment was terminated and he received approximately £110,000.00 in severance payments (payment).
OECD releases first BEPS recommendations to G20 in accordance with Action Plan
As a part of the OECD/G20 project to combat base erosion and profit shifting (“BEPS”), the OECD released the first set of reports and recommendations on September 16, 2014. These reports address seven of the actions described in the 15-point action plan to address BEPS published in July 2013 (the “Action Plan”) and consist of the following items: Recommendations for domestic rules to neutralize hybrid mismatch arrangements and recommended changes to the OECD Model Tax Convention to deal with transparent entities (Action 2, the “Hybrids Report”);