Author: Manri Oosthuizen (Moore Stephens) An explanation of rebates on foreign withholding taxes paid in accordance with 6quin of the Income Tax Act 58. It is a common occurrence in many South African businesses to transact with customers outside our borders, especially with customers in the rest of Africa. In most of these transactions, in particular services such as IT-related and management, tax is withheld by the customer in the African country. Tax withheld is based on the invoice amount of the transaction with rates as high as 25 percent.
Category: International Tax
Crossborder taxation
Author: Albertus Marais (Mazars) Delving deeper into South African corporate tax residence rules. Tax advisors are often approached by disillusioned corporate clients who have a group company which has been incorporated offshore (quite often in a low-tax jurisdiction such as Mauritius), and which has been assessed by the South African Revenue Services (SARS) on the basis that the company is a tax resident in South Africa. Quite often these structures were set up by previous tax advisors who failed to explain the practical implications linked to having an offshore company, and what needs to be done practically to have that company’s tax residence offshore.
Proposed modifications to the transfer pricing guidelines relating to low value-adding intra-group services
Author: Emil Brincker (DLA Cliffe Dekker Hofmeyr) The Organisation for Economic Co-operation and Development (OECD) released a public discussion draft (DD) pertaining to the Base Erosion and Profit Shifting (BEPS) Action Plan 10 on 3 November 2014. The DD intends to reduce the scope for erosion of the tax base by means of the charging of excessive management fees and head office expenses.
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.
OECD publishes first seven reports in its Base Erosion Profit Shifting (BEPS) project
Authors: David Gubbay, Ben Roberts , Adam Craggs and Nigel Brook – RPC Global On 16 September 2014 the Organisation for Economic Co-operation and Development (OECD) published its first set of reports and recommendations on the BEPS project. Seven of the 15 areas of the BEPS action plan are covered, addressing: the digital economy hybrid mismatches treaty abuse transfer pricing documentation and country-by-country reporting transfer pricing and intangibles harmful tax practices a possible multilateral instrument to implement BEPS
The assumption of rehabilitation liabilities as consideration given on the acquisition of mining property and capital assets
Author: Andre Vermeulen – 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.
Minor delay in the introduction of the interest withholding tax
However, in terms of the revised draft Taxation Laws Amendment Bill, 2014 (TLAB), which was tabled in parliament on 15 October 2014 and is likely to be promulgated in its current form, a subtle amendment has been made to the effective date such that the interest withholding tax will only be effective from 1 March 2015. Taxpayers are unlikely to be too concerned that the interest withholding tax has been delayed by three months.
Proposed changes to secondary transfer pricing adjustment – further developments
We have previously reported on the draft Taxation Laws Amendment Bill 2014 (Bill) that was released by the National Treasury and the South African Revenue Service (SARS) earlier this year, and specifically in respect of the proposed changes to the secondary transfer pricing adjustment mechanism. The secondary transfer pricing adjustment mechanism, contained in s31(3) of the Income Tax Act, No 58 of 1962 (Act), currently takes the form of a deemed loan in an amount equal to the difference between the arm’s length amount that is taken into account for tax purposes of any resident party as a result of the primary transfer pricing adjustment and the non-arm’s length amount that would have been taken into account had there been no primary transfer pricing adjustment.
The future of the international tax landscape
The Organisation for Economic Co-operation and Development (OECD) Base Erosion and Profit Sharing (BEPS) Action Plan, approved by the OECD Committee of Fiscal Affairs (CFA) in June 2013 and endorsed by the G20 Heads of Government in September 2013, was formulated to combat international tax avoidance by multinational enterprises (MNEs) through artificially shifting profits to low tax jurisdictions and eroding the tax bases of their primary high tax jurisdictions of operation. The objective of the BEPS Action Plan is to secure government revenues by ensuring that profits are taxed in the jurisdiction where the economic activities generating such profits are performed and where value is created.
The assumption of rehabilitation liabilities as consideration given on the acquisition of mining property and capital assets
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.