Even George Orwell, with his prophetic satirical insight, would have been confounded by the level of domestic and global surveillance that characterises our lives today. Indeed, given the objectives of the Organisation for Economic Development and Cooperation (OECD) Base Erosion and Profit Shifting (BEPS) Action Plan – to combat international tax avoidance by multinational enterprises (MNEs) and to secure government revenues – surveillance in the form of the inter-jurisdictional exchange of information and administrative assistance for tax collection purposes is not only justifiable but indispensable. Nonetheless, it behoves taxpayers to be alert to the rapidly expanding web of tax surveillance in which they operate.
Category: International Tax
Withdrawal of rebate in respect of foreign taxes on service fees sourced in South Africa
With effect from 1 January 2012, the South African Government introduced s6quin of the Income Tax Act, No 58 of 1962 (Act) which provides for a rebate in respect of foreign taxes paid by a South African resident for services rendered within South Africa. In terms of the various treaties for the avoidance of double taxation that South Africa has with other countries, the country that is the source of the income generally has the sole right to tax that income. In respect of services, the country in which the services are rendered is generally understood to be the source of the income in relation to such services.
FATCA – Approaching the 30 June 2015 Reporting Deadline
The United States of America (US) Congress enacted the Foreign Account Tax Compliance Act (FATCA) in 2010. FATCA aims to identify non-compliance by US taxpayers (including US taxpayers not residing in the US), which may previously have been concealed by using foreign financial accounts. FATCA imposes reporting obligations on US individual taxpayers (and certain individuals who own predetermined foreign financial accounts or offshore assets) and Foreign Financial Institutions (FFIs). In terms of FATCA, FFIs include South African banks and custodians, brokers, asset managers, private equity funds, certain investment vehicles, long-term insurers and other participants in the financial system.
The conundrum of the interplay between interest deduction limitations, interest withholding tax and double tax agreements
Author: Gerdus van Zyl (Tax Manager at ENSAfrica) The conundrum of the interplay between interest deduction limitations, interest withholding tax and double tax agreements The deductibility of interest has for years been a contentious issue and this has been reaffirmed with the introduction of section 23M into the Income Tax Act No 58 of 1962 (the “Act”) with effect from 1 January 2015. A further addition to the interest sphere of income tax is the introduction of interest withholding tax provisions in sections 50A to 50H, which came into effect on 1 March 2015.
Reportable arrangements specifically extended to foreign trust structures
On 16 March 2015, the Commissioner for the South African Revenue Service (SARS) published Government Notice No. 212 in terms of s35(2) and s36(4) of the Tax Administration Act No, 28 of 2011 (TAA) specifically listing certain arrangements as so-called reportable arrangements (Notice). These listed arrangements are in addition to the arrangements that are already listed in s35(1) of the TAA. The effect of an arrangement being regarded as a reportable arrangement for purposes of s35 of the TAA read with the Notice is that,
International Tax – Treaty shopping
The concept of base erosion and profit shifting (BEPS) has been much discussed at various international forums including the G20 Finance Ministers and Central Bank Governors meeting in July 2013 in Moscow as well as the G20 Heads of State meeting in September 2013. From a South African perspective, the Davis Tax Committee has been set up, inter alia, in order to address the issue of BEPS in a South African context.
Section 24I – deferral of exchange gains and losses
Section 24I of the Income Tax Act No. 58 of 1962 (the Act) was amended in 2012 in respect of exchange items arising between connected persons or groups of companies. The purpose of this amendment was to address the problem of liquidity in the case of intra-group loans or loans between connected persons. This liquidity challenge necessitated that the tax treatment of the exchange items deviates from the accounting treatment for these exchange items by excluding long term loans from the mark-to-market regime. Therefore, if an exchange item arises between a person and a connected person in relation to that person or another entity within the group (if that person is part of a group of companies), the exchange gains or losses arising from that exchange item are not subject to tax until:
Cross-border technical services income – Double Tax Agreements should be considered
Author: Bruce Russell (Grant Thornton Cape) South African resident taxpayers performing advisory or other technical services within South Africa to clients abroad, may be subject to foreign withholding taxes. To reduce the risk of this income being subjected to double taxation, it is necessary to consider the source of this income. The source of services income South African courts have interpreted the concept of source in applying the Income Tax Act.
Who is obliged to report a reportable arrangement?
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.
SARS' new list of ‘Reportable Arrangements'
SARS’ list of reportable arrangements, as envisaged by section 35 of the Tax Administration Act, 2011 (TAA), has been widened extensively. The arrangements, deemed reportable, were published on 16 March 2015 in a public notice (‘the Notice’) in the Government Gazette. Reportable arrangements must be reported to SARS within 45 business days after becoming a participant in a reportable arrangement or 45 business days after the date on which an arrangement qualifies as a reportable arrangement. Every participant has the duty to disclose the prescribed information regarding the arrangement to SARS unless the participant obtains a written statement from another participant that the other participant has disclosed the arrangement.