Section 66 of the Income Tax Act No. 58 of 1962 (“the Act”) requires the Commissioner to give public notice annually of the prescribed time period within which persons who are liable to taxation under the Act must furnish their tax returns. The time period applies equally to persons who are not necessarily liable to taxation but who are in any event required by the Commissioner to furnish returns for the assessment of tax.
On 29 June 2012, SARS issued its annual notice in the Government Gazette which provided that every company, trust or juristic person, which is either a resident or which derives any gross income or capital gain from a source within the Republic, must furnish a tax return within 12 months from the date within which its financial year ends in respect of the 2012 year of assessment.
This announcement, which perhaps escaped the attention of many people, is likely to be problematic in light of our source rules contained in section 9 of the Act which makes it clear that the source of any dividends, interest and royalties is where the paying company is located. Section 9 has the effect that non-resident companies receiving dividends, interest and royalties from companies located in South Africa will be receiving gross income for South African tax purposes whereas in the past, the source of these income streams may still have been located abroad.
Furthermore, this obligation is rendered all the more nonsensical because any company declaring dividends etc. to a non-resident is obliged to deduct withholding tax at 15% unless varied by a tax treaty.
Given that the notice requires companies to furnish their tax returns where gross income is derived from a South African source, the combined effect of section 9 and the notice will be to increase the administrative burden of these companies. If it is really SARS’ intention that each and every foreign investor must furnish a return, the non-resident will now be required to register for tax in South Africa even where it is ultimately not liable to South African tax.
It is also likely that many non-resident companies affected by this announcement will remain uninformed and be subject to administrative penalties for not furnishing their tax returns.
The latest notice issued by SARS potentially raises a new administrative risk for non-resident companies receiving passive income from South Africa. However, on balance, this would appear to be an administrative error given the ability to ensure the full liability is already catered for through the withholding tax mechanism.
Until the matter is resolved, however, due regard needs to be had when advising foreign clients of their South African tax registration and filing requirements.