In cases where South Africa has concluded an agreement with another country for the avoidance of double taxation, a critical issue is the circumstances under which the business profits of a person who is a resident of that country may be taxed in the Republic. The right to tax is linked to whether the activities of that person give rise to a permanent establishment (PE). Where a permanent establishment is found to have been created, South Africa may tax the income attributable to that permanent establishment. Every double-taxation agreement (DTA) contains an article in which the term “permanent establishment” is defined. The definition commences with a basic statement of principle:
Category: International Tax
‘Tax havens will chase out non-compliant taxpayers’ – As global efforts to close loopholes intensify.
Author: Ingé Lamprecht (Moneyweb) JOHANNESBURG – South Africans with unauthorised funds abroad better get their affairs in order because tighter regulation in tax havens will soon become a reality, a tax expert has warned. Speaking at a recent seminar hosted by The Wealth Corporation, Tony Davey, director at boutique consulting firm Tony Davey and Associates, said South Africans with offshore funds (foreign inheritances, foreign earnings pre-1998 or “schlep” funds like unspent travel allowances) that weren’t externalised in line with the R10 million offshore investment allowance or R1 million foreign discretionary allowance permitted by the South African Reserve Bank (Sarb) may soon bear the brunt of closer scrutiny.
The Global Forum releases new compliance ratings on tax transparency
Author: OECD The Global Forum on Transparency and Exchange of Information for Tax Purposes published new peer review reports today for 12 countries or jurisdictions, moving further ahead with its goal to implement global standards on transparency and exchange of information for tax purposes. Phase 1 reports on , , , , , and assessed their legal and regulatory frameworks for transparency and exchange of information on request. These countries were assessed to have legal frameworks in place to enable them to move to the next stage of the review process, which will assess exchange of information practices.
Tax court rules on creation of permanent establishment in South Africa
Author: Dr Beric Croome – ENSafrica Tax Executive Where a foreign company renders professional services to a South African company in South Africa, it is important that the foreign entity considers whether, as a result of rendering such services, the foreign company will create a permanent establishment in South Africa. The reason why this becomes important is that where a foreign company creates a permanent establishment in South Africa, this country will under the provisions of a Double Tax Agreement (“DTA”) concluded with another country, be entitled to subject that foreign entity to tax on the profit attributable to that permanent establishment created in South Africa.
Withdrawal of foreign tax credits for South African-sourced income
Johannesburg, 23 July 2015 – The 2015 Budget announced by Finance Minister Nene included a number of measures to bolster tax revenues from an international perspective. According to David Warneke, a Director and Head of Tax Technical with BDO South Africa, these measures include potentially removing tax relief currently afforded to South African companies on service income received from outside South Africa. This could negatively impact foreign direct investment into South Africa. “This was originally introduced to relief South African companies of withholding taxes (sometimes in contravention of the Double Taxation Treaties) imposed by foreign entities that became unrecoverable,” says Warneke.
Third party returns – exchange of information in accordance with international tax standards
In order to provide the necessary legislative amendments required to implement the tax proposals that were announced in the 2015 National Budget on 25 February 2015, the National Treasury (Treasury) published the 2015 Draft Tax Administration Laws Amendment Bill (TALAB) on 22 July 2015 for public comment. One of the important proposals relates to greater tax transparency and the automatic exchange of information between tax administrations in various jurisdictions in order to counter cross-border tax evasion and aggressive tax avoidance. To this effect, s32 of the TALAB proposes the insertion of a definition of “international tax standard” in s1 of the Tax Administration Act, No 28 of 2011 (TAA), to mean “an international standard as specified by the Commissioner by public notice for the exchange of tax-related information between countries”.
Exchange Control Appeal Won Against Shuttleworth
Author: By Ferdie Schneider, Head of Tax, BDO The Constitutional Court delivered judgement on 18 June 2015 against Mark Shuttleworth in favour of the South African Reserve Bank (SARB) and the Minister of Finance. Mark Shuttleworth emigrated to the Isle of Man in 2001 to invest outside South Africa and applied to SARB to transfer approximately R2.5 billion. SARB imposed an exit charge of 10% on the capital and Shuttleworth paid approximately R250 million although he challenged the constitutionality of imposition.
Tax consequences of foreign companies rendering services in South Africa
Where a foreign company renders professional services to a South African company, it is important that the foreign entity considers whether, as a result of rendering such services, the foreign company will create a permanent establishment in South Africa. The reason why this becomes important is that where a foreign company creates a permanent establishment in South Africa, South Africa will under the provisions of a Double Taxation Agreement (“DTA”) concluded with another country, be entitled to subject that foreign entity to tax on the profit attributable to that permanent establishment created in South Africa. In the case of X LLC, case number 13276 heard in February 2015, as yet unreported, the Tax Court had to determine whether X had created a permanent establishment in South Africa, and as a result thereof, was liable to tax in South Africa. The case involved a corporation incorporated in the United States of Read More …
SARS signed a Memorandum of Understanding (MOU) with the Mauritius Revenue Authority (MRA)
On 22nd May 2015 SARS signed a Memorandum of Understanding (MOU) with the Mauritius Revenue Authority (MRA). David Warneke, Tax Director at BDO South Africa, explains that the background to the MOU is that a new Double Taxation Agreement (DTA) between South Africa and Mauritius was signed in Maputo on the 17th of May 2013. This new DTA has now been ratified by both countries and is expected to enter into force with effect from 1 January 2016.
Shuttleworth’s exit charge was valid and did not constitute a tax
In an about-turn the Constitutional Court handed down judgment in the Shuttleworth matter on 18 June 2015. Not only was it found that Shuttleworth’s exit charge constituted a regulatory charge as opposed to a tax, but it was also found that the Exchange Control Regulations were not unconstitutional. Should one consider the history of the matter, Shuttleworth made application to the South African Reserve Bank (Reserve Bank) to transfer approximately R2,5 billion out of South Africa. This approval was granted subject to an exit charge of 10% being imposed on the capital that was exported. The payment of this exit charge was challenged by Shuttleworth: