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.
Category: International Tax
CFC rules to be amended in the battle against BEPS
A controlled foreign company (CFC) is any foreign company of which more than 50% of the total participation rights are directly or indirectly held, or of which more than 50% of the voting rights are directly or indirectly exercisable, by one or more South African residents.
Withdrawal of rebate in respect of foreign taxes on income
By way of background, section 6quin of the Income Tax Act, which was introduced by Government in 2011, provides for a rebate in respect of foreign taxes withheld by a foreign government on income from a source within South Africa (SA). The rebate is limited to the lesser of – the amount of normal tax attributable to the amount received or accrued; or the amount of tax levied and withheld; or the amount of tax imposed.
Exemption of foreign pensions received by South African residents
Over the past few years there has been uncertainty surrounding the circumstances of South African residents receiving pension payments for services rendered or partly rendered outside South Africa. The South African Revenue Service (SARS) has previously taken the view that if the fund was located in South Africa, then the source was deemed to be in South Africa and therefore rendered the total amount of the pension payment as being taxable in South Africa, irrespective of the fact that the pension may have related partly to services that were rendered outside the country.
The treatment of foreign pensions
In terms of s10(1)(gC)(ii) of the Income Tax Act, No 58 of 1962 (Act) a pension received by or accrued to a resident from a source outside South Africa as consideration for past employment outside South Africa is exempt from the payment of tax. In terms of s9(1)(i) of the Act it is indicated that an amount is deemed to be sourced within South Africa if the amount constitutes a pension or annuity and the services in respect of which the amount is received or accrued were rendered within South Africa.
Base Erosion and Profit Shifting (“BEPS”) – are you BEPS proof?
Author: Okkie Kellerman – ENSafrica BEPS is a term used by the Organisation for Economic Co-operation and Development (“OECD”) to describe tax planning strategies exploiting gaps and mismatches in tax rules so that profits disappear for tax purposes or profits are shifted to locations with little or no real activity and where profits are subject to little or no taxes. Although BEPS is not illegal it distorts competition between those companies operating cross border and those operating domestically and it leads to inefficient allocation of resources and it seems unfair that some companies can legally avoid paying tax.
OECD proposes curtailing use of commissionaire and other arrangements that aim to avoid PE Status
The OECD Focus Group on the Artificial Avoidance of Permanent Establishment (PE) Status recently issued its Proposed Discussion Draft that proposes 14 possible changes to the definition of a PE under Article 5 of the OECD Model Tax Convention. The proposals were a response to the OECD Action Plan on Base Erosion and Profit Sharing (BEPS) published in July 2013. The primary focus is on the perceived abuses associated with: (i) using a “commissionaire arrangement” instead of a local distributor arrangement in order to shift profits out of the country where sales take place; (ii) using certain specific activity exemptions to prevent the application of the PE rules; and (iii) certain uses of construction and insurance contract provisions.
Pensions received by SA residents from SA pension funds for services rendered partly abroad
Author: Jenny Klein – Tax Manager at ENSafrica Many South Africans spend significant periods of time working outside the country. Due to the fact that South Africa taxes the world-wide income of its residents, payments received by residents for services rendered outside the country are included in their gross income for South African tax purposes, but may subsequently be excluded from their taxable income in terms of any available exemptions. Whilst this may be the case the question is often posed whether any similar exemption may apply to their pension benefits received upon retirement from their South African pension fund in relation to the period of services rendered abroad.
The transfer pricing compliance conundrum
Author: AJ Jansen van Nieuwenhuizen, Tax Partner, Grant Thornton Johannesburg By now, most South African taxpayers should be aware that when they enter into transactions with related parties who are not South African taxpayers, such transactions should be concluded on terms and prices that are at arm’s length in nature. The term “arm’s length” essentially indicates a position that two unrelated parties would adopt in an open market transaction, as a willing buyer and willing seller. Critical to managing tax risk for any taxpayer that has transactions of this nature is being able to defend the transfer pricing (TP) position that they have adopted and the only way to adequately do so is through the preparation of TP policy documentation.
Proposed amendments to Section 9D could offer a simpler means to avoid controlled foreign company imputations
Author: Bruce Russell, tax consultant, Grant Thornton Cape The controlled foreign company (CFC) provisions seeks to reduce the opportunity for income to be diverted and taxed offshore in the hands of foreign companies where: South African tax residents may exercise, directly or indirectly, a majority of the voting rights in the foreign companies or where South African tax residents may participate, directly or indirectly, in the majority of the benefits attached to shares of the foreign companies. In terms of Section 9D of the Income Tax Act, a hypothetical taxable income, “net income”, is calculated as if the CFC is South African tax resident. This net income may be included in the taxable income of the South African tax resident shareholders.