Author: Heinrich Louw A South African incorporated and resident company (Applicant) had two subsidiaries that were incorporated and resident in foreign countries, and were CFCs. The first subsidiary (CFC 1) was a listed passive holding company. The second subsidiary (CFC 2) was a privately held intermediate holding company. In order to consolidate some of the group’s investments, it was proposed that all the assets and liabilities of CFC 1 be transferred to CFC 2 by way of a merger. As a result of the merger, the assets and liabilities of CFC 1 would become that of CFC 2 by operation of law, and CFC 1 would automatically cease to exist.
Category: International Tax
South African tax legislation: proposed amendments in an international tax context
Authors: Lavina Daya and Yani van der Merwe and Liesl Visser This article sets out a brief summary of some of the proposed amendments introduced by recent South African draft Tax Bills. The article focuses on amendments in the context of international taxation. The draft Taxation Laws Amendment Bill, 2015 (“draft TLAB”) and the draft Tax Administration Laws Amendment Bill, 2015 (“draft TALAB”) were released by National Treasury on July 22, 2015. These draft Bills aim to provide the necessary legislative amendments required to implement most of the tax proposals outlined in the 2015 Budget Review. Specifically, the draft TLAB deals with more substantive changes to tax legislation and the draft TALAB deals with administrative provisions of tax legislation currently administered by the South African Revenue Service (“SARS”). We consider proposed amendments in an international tax context below.
Africa tax in brief
Author: Celia Becker (ENSafrica) ANGOLA: Amendments to Consumption Tax Presidential Legislative Decree (“PLD”) No. 5/15 was enacted and entered into force on 21 September 2015. The PLD amends the applicable rates of consumption tax and customs duties applicable on imports and exports. Amendments to the applicable rates and taxable products include: an increase of the maximum rate of consumption tax on imports from 30% to 80%; an increase of the maximum rate of consumption tax on domestic production from 30% to 65%; and an introduction of consumption tax at the rate of 2% or 5% on various petroleum products.
The definition of ‘controlled group company’ and ‘equity share’
Author: Heinrich Louw (Senior Tax Associate – Cliffe Dekker Hofmeyr) The South African Revenue Service (SARS) released Binding Private Ruling No, 205 (Ruling) on 11 September 2015. The Ruling considers the meaning of ‘controlled group company’ and ‘equity share’. An approved venture capital company (VCC) in terms of s12J of the Income Tax Act, No 58 of 1962 (Act), resident company A (Company A), and resident company B (Company B), proposed to incorporate a new company (RentalCo).
Exchange control: Constitutional Court ruling on SARB 10% exit charge to Shuttleworth
During a budget speech in 2003, the Minister of Finance imposed what was termed a 10% exit charge on monies leaving the country in excess of R750 000. In 2009, Mr Shuttleworth applied to the South African Reserve Bank (“the SARB”) for permission to transfer approximately R2.5 billion out of South Africa. The SARB granted Mr Shuttleworth permission to transfer this amount on condition that he paid the exit charge. Mr Shuttleworth paid the charge of approximately R250 million. He was later advised that the exit charge was a tax and had been imposed in a manner not permitted by the Constitution or the applicable statute.
Permanent establishments in South Africa
Recently, the Tax Court handed down judgment in the unreported case of AB LLC and BD Holdings LLC v the Commissioner of SARS (heard in February 2015) in which it had to determine whether or not an American company acting as an advisory group for the South African airline industry, had created a permanent establishment in South Africa. In making it’s decision, the court reviewed the Double Taxation Agreement (“DTA”) concluded between South Africa and the USA. A permanent establishment is created in terms of a double taxation agreement and outlines the activities that an enterprise of a resident state must conduct in a source state before the profits generated from those activities can be taxed in the source state. According to Section 5(1) of the Double Tax Agreement (and the Organisation for Economic Co-operation and Development Model Tax Convention), the term “permanent establishment” means:
Ex parte preservation orders: Krok v CSARS
This case was an appeal from the Gauteng Division of the High Court to the Supreme Court of Appeal (“SCA”) pertaining to the correctness of the granting of an ex parte preservation order applicationthat was brought against Mr Krok by the Commissioner of the South African Revenue Service (“SARS”) in terms of sections 163 and 185 of the Tax Administration Act No. 28 of 2011 (the “TAA”). The Court had to determine the question having regard to the application of the Double Taxation Agreement (“DTA” – as amended by a protocol) between South Africa and Australia.The DTA provided for the mutual assistance between the two jurisdictions for the collection of taxes.
Foreign entities deriving income from South Africa must register as taxpayers
Author: Douglas Gaul, Tax Manager Grant Thornton Johannesburg It has long been a requirement that a non-resident company, trust or other juristic person must file a tax return if it carried on a trade through a permanent establishment in South Africa, or derived any capital gain from a South African source. Every year, the requirements for submitting income tax returns are published by way of a notice in the Government Gazette and it is interesting to note that the requirements for submitting returns for the 2015 year now include non-resident companies, trusts or other juristic persons that derive income from a source in South Africa.
Revised draft interpretation note regarding “place of effective management”
Author: Annalie Pinch and Chris de Bruyn Earlier this year, the South African Revenue Service (“SARS”) released issue 2 of Interpretation Note 6 (“draft Interpretation Note”) on the “place of effective management” (“POEM”). Comments were due by 31 July 2015. POEM is often of critical importance in determining the tax residency of an entity. The interpretation previously put forward by SARS in terms of Interpretation Note 6 issued during 2002 (“IN6”) in this regard, did not accord entirely with international precedent and the approach followed by SARS was that the POEM is:
Amendments to CFC Diversionary Income Rules
Authors: Leani Nortje and Nola Brown (Webber Wentzel) Section 9D currently provides for diversionary income rules which seek to impute into the income of South African residents, service income derived from the performance of services by a CFC to a connected South African resident, and certain sales income derived by CFCs in relation to those residents, from the sales of goods that were sourced by the CFCs from connected parties in South Africa (so-called “CFC inbound sales”). The inbound sales rule does not apply where the CFC is located in a high tax jurisdiction,or the income from the sale of goods is attributable to the activities of a permanent establishment of the CFC. Prior to 1 April 2012, however, the exemptions to the diversionary income rules in relation to CFC inbound sales were substantially broader, in that an exemption existed if: