Author: Andre Vermeulen – Tax Associate – ENSafrica During December 2013, SARS released a draft discussion paper in which it set out its application of the relevant tax law, in relation to the tax treatment of the purchaser and seller, with regard to the assumption of contingent liabilities as part settlement of the purchase price of assets acquired as part of a going concern. SARS states that the document was prepared in light of recent judgments delivered by local and foreign courts as well as numerous requests for clarity regarding the income tax treatment, of both the seller and the purchaser, in respect of the assumption of contingent liabilities as part settlement of the purchase price of assets disposed of and acquired.
Category: Income Tax
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.
Small businesses owners can take a sigh of relief due to public participation by SAIT
Author: SAIT The Income Tax Act in its current form provides an array of tax incentives to incentivise the growth of small business corporations (‘SBC’). A small business corporation is basically, subject to certain exclusions, any close corporation, co-operative or private company of which all the shares are held by natural persons where the gross income of that close corporation, co-operative or private company does not exceed R20 million per year of assessment.
SARS must choose its remedies
The decision of Rogers J, in Commissioner for the South African Revenue Service v Tradex (Pty) Ltd and others (9 September 2014, case no 12949/2013, as yet unreported) has raised a number of issues pertaining to the circumstances under which the South African Revenue Service (SARS) is entitled to obtain a preservation order against a taxpayer in terms of s163 of the Tax Administration Act, No 28 of 2011 (TAA). Ultimately it was found that SARS was not entitled to a preservation order as it was not ‘required’ to secure the collection of the taxes that could have become due in that instance.
Exempt Employment Income – Foreign Employment
In terms of current practice, remuneration derived from services rendered outside of South Africa is, subject to certain requirements, exempt from normal tax in South Africa in terms of section 10(1)(o)(ii) of the Income Tax Act, No. 58 of 1962 (the Act). The general rule is that income earned by a tax resident of South Africa from the rendering of services anywhere in the world will be included in ‘gross income’ as defined in section 1(1) of the Act. Notwithstanding the general rule above, certain exemptions are provided for, inter alia, in section 10(1)(o) of the Act in respect of remuneration which would likely have been subject to the deduction of employees’ tax under normal circumstances.
Tax Administration – SARS Preservation orders
A Cape Town based businessman has been the subject of investigation by SARS into alleged VAT fraud, and has been issued with an assessment for R291 million. An unexplained gift to the daughter of the tax debtor When his daughter, a swimwear model, received – out of the blue and without explanation – an eye-wateringly large gift of $15.3 million (equivalent to some R143 million) from an unnamed Arab admirer plus two luxury cars worth R2.75 million, SARS suspected that this money and these assets were intended for her father and had been ostensibly channelled to her so as to avoid their being seized by SARS to fund the payment of her father’s tax debt.
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).
Do you have tax skeletons in your closet?
Author: Erich Bell (SAIT Technical) For most tax professionals, standing at a braai and explaining what one’s profession entails may be an uncomfortable experience, especially if one’s guests do not have an accounting or law background. Some of the questions that would normally arise include, ‘oh, so you work for SARS?’ or ‘that’s nice, I’m, however, not keen on talking about my financial affairs’. A couple of moments later, that awkward silence starts to set in. With this example, I’m almost certain that SARS officials receive an even warmer welcome among their fellow guests.
OECD releases finalized proposals on key tax base erosion concerns
On September 16, 2014, the Organization for Economic Cooperation and Development (OECD) released its 2014 deliverables on the Base Erosion and Profit-Shifting (BEPS) project. The BEPS project, an ambitious and wide-ranging effort by the OECD’s Centre for Tax Policy and Administration (CPTA), is aimed at combating tax avoidance strategies in which global businesses minimize their overall tax burden by moving profits into taxpayer-friendly jurisdictions and exploiting differences in the tax laws and treaties of countries around the world. The OECD began its efforts in 2013 at the behest of the G-20 group of nations, which had come to understand that any serious effort to prevent these tax avoidance strategies would require centralized, coordinated planning and study.
Concerns raised on interest deduction limitation rules
Interest deduction limitation provisions have been enacted in terms of s23N of the Income Tax Act, No 58 of 1962 (Act), which apply to so called ‘reorganisation and acquisition transactions’. These provisions have been in effect since 1 April 2014. The purpose of these provisions (as the heading suggests) is to limit interest deductions in respect of certain debt arrangements that National Treasury consider as being susceptible to excessive gearing.