The South African Revenue Service (SARS) published Binding Private Ruling No 197 (Ruling) on 1 July 2015. The Ruling deals with the receipt of funds from a foreign trust, and the subsequent donation and investment thereof. The applicant was an individual resident in South Africa. The applicant was also a beneficiary of a foreign trust. The foreign trust only held funds sourced from outside South Africa. The trustees of the foreign trust resolved to award a specified amount of the foreign trust funds to the applicant, after which the applicant would be removed as a beneficiary.
Category: Interpretation Notes
Cross-border technical services income – Double tax agreements should be considered to reduce double tax burdens
Author: Bruce Russell, tax consultant 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. Source in this context is not a legal concept, but rather something a reasonable man would regard as the real source of income.
Interpretation of exemption provisions
The Tax Court gave judgment in the matter of ABC (Pty) Ltd vCommissioner for the South African Revenue Service (case number 13512, as yet unreported) on 30 March 2015. Even though the case concerned secondary tax on companies (STC), which has been replaced by dividends tax, it is interesting to see how the court dealt with the interpretation of an exemption provision.
Binding Private Ruling on a Notional Funding Arrangement: the Issue and Repurchase of Ordinary Shares
SARS issued the Binding Private Ruling 190 on 5 March 2015, which deals with the issue and repurchase of ordinary shares. The ruling deals with a proposed arrangement and the contractual rights and restrictions established separately from any class provisions applicable to those shares in terms of the Applicant Company’s memorandum of incorporation. The parties to the ruling include the Applicant, which is a company incorporated in and a resident of South Africa; and the Co-Applicant which is a company incorporated in and a resident of South Africa.
SARS clamps down on share buy backs followed by the issue of shares
In practice taxpayers often enter into arrangements in terms of which a company buys back its own shares held by certain shareholders, and immediately thereafter issues new shares to new shareholders. This practice has long caused tax avoidance concerns for the South African Revenue Service (SARS), as it could circumvent the payment of capital gains tax (CGT) by the shareholder whose shares are bought back.
SARS extends the list of reportable arrangements
The Commissioner for the South African Revenue Service (SARS) issued an important notice (SARS Notice) on 16 March 2015. The SARS Notice was published in terms of s35(2) and s36(4) of the Tax Administration Act, No 28 of 2011 (TAA). Sections 34 to 39 of the TAA deal with so-called ‘reportable arrangements’. Essentially, if an arrangement has certain characteristics (as listed in s35(1) of the TAA) or if SARS has listed the arrangement in a public notice (in terms of s35(2) of the TAA), then the person who promotes the arrangement (called a promoter) and the person who may derive a tax benefit from the arrangement (called the participant) must report the arrangement to SARS.
Binding Ruling – Conversion of a PBO to a for-profit Company
In Binding Private Ruling 188 (‘BPR’) SARS recently dealt with the conversion of a tax exempt Public Benefit Organisation (‘PBO’) to a for-profit company. Parties to the proposed transaction were a company incorporated in a foreign country and limited by guarantee, which is registered in South Africa as an external company (the ‘Applicant’ or ‘Applicant PBO’) under section 23(1)(a) of the Companies Act, 2008, and a PBO under section 30 or the Income Tax Act (‘the Act’). Section 30 governs PBOs in the Act.
Binding Ruling – Waiver of an Intra-Group Loan that Funded the Acquisition of a Mining Operation
SARS recently released Binding Private Ruling 187 (‘BPR’) which deals with the waiver of a loan that funded the acquisition of a mining operation as a going concern under an intra-group transaction, as contemplated in section 45 of the Income Tax Act (the ‘Act’). Parties to the proposed transaction were a company incorporated in and a resident of South Africa (the ‘Applicant’), and a second company incorporated in and a resident of South Africa (the ‘Co-Applicant’).
Temporary rental of units – Extension of cut-off date
Where developers are unable to sell their units and decide to find a tenant to temporarily let the property in order to earn rental income, they were previously required to account for VAT on the market value of the property, as the change in use of the property from making taxable supplies to exempt supplies, resulted in a deemed supply. Specifically, when a developer temporarily changed the use of properties held for resale (taxable supplies) by letting them as dwellings to tenants (exempt supplies), s18(1) of the Value-Added Tax Act, No 89 of 1991 (VAT Act) provided for a change in use adjustment and the developer was obliged to pay VAT on the deemed supply of the property as at the date that it was applied for exempt purposes.
Binding Ruling – Draft ruling on unbundling transactions
Author: Emil Brincker – Tax Director (Cliffe Dekker Hofmeyr) The South African Revenue Service (SARS) recently issued a draft Binding General Ruling (BGR) that addresses the interpretation of the words “at the end of the day after that distribution” as used in s46(3)(a)(v) of the Income Tax Act 58 of 1962 (Act). Section 46 of the Act deals with unbundling transactions and provides parties to such a transaction with relief from various taxes that would otherwise become payable.