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Specifications for the reporting of information under FATCA, AEOI and domestic law

Pretoria 3 April 2014 – On 8 February 2013, the National Treasury and the South African Revenue Service (SARS) announced the start of negotiations with the US Department of the Treasury to enter into an inter-governmental agreement (IGA) with respect to the USA’s Foreign Account Tax Compliance Act (FATCA). The wording of a draft IGA has now been agreed upon and will be signed at Governmental level as soon as possible. When signed, the US Treasury will view South African financial institutions as being generally compliant with FATCA.

International taxation controversy: the coming storm

Author:  Cym H. Lowell and William Zhang There is a revolution underway in the world of international taxation.  The current essential treaty and substantive taxation rules were developed shortly after the end of World War I using England and India—denominated “imperial” and “colony” countries, respectively—as a model.  The purpose of these treaty and substantive rules was to repatriate income from the colony country to the imperial country to facilitate repayment of war debts.  As a result, the model treaties that formed the basis of the current Organisation for Economic Co-operation and Development (OECD) and United Nations models essentially allowed source countries to tax only a limited share of the overall (combined) income, and allocated the residual income to the “residence” country (England, or the imperial country).

Ruling on the definition of 'listed shares' for purposes of the foreign dividend exemption

Author: Heinrich Louw (Cliff Dekker Hofmeyer) The South African Revenue Service (SARS) released Binding Class Ruling No 42 on 7 February 2014. The factual circumstances in respect of which the ruling was made are as follow: Company Y is a company incorporated and resident in foreign country Y. Company X is a company incorporated and resident in country X. Company X is also a wholly-owned subsidiary of Company Y. Company X is to be listed on the JSE Limited. Its business is investment in foreign debt instruments, on which it will receive interest returns.

Sars takes on South African billionaire

Pretoria – South African billionaire Mark Krok’s local assets, worth R298m, were placed under curatorship by the North Guateng High Court in Pretoria on Friday. The SA Revenue Service (Sars) obtained a final preservation order against the businessman. Judge Hans Fabricius confirmed a provisional preservation order granted in February last year against Krok’s South African assets. The assets include a large portfolio of shares in JSE-listed companies such as African Bank, BHP Billiton, Bidvest, First Rand, MTN, Vodacom, Sasol, SABMiller, and Tsogo Sun. They also include a plot in Plettenberg Bay, a R40m property in Clifton and a Jeep Sahara.

The limitation of deductions for untaxed interest

Author: Kyle Mandy (PwC) The Taxation Laws Amendment Bill 39 of 2013 proposes the introduction of a new section (section 23M) to the Income Tax Act (ITA) to limit the deduction of interest incurred by a debtor in respect of a debt owed to a creditor that is in a ‘controlling relationship’ with the debtor and the interest in question is not subject to South African tax. The restriction will apply to interest incurred on or after 1 January 2015. In essence, the section limits the deduction for interest paid between connected persons where the interest is not taxed in the hands of the recipient to an amount determined with reference to 40% of taxable income before interest and capital allowances.

Income Tax Act 58 of 1962 – Deemed exchange gains & losses

Section 24I(10) of the Income Tax Act 58 of 1962 (ITA) has been replaced by a new provision for years of assessment commencing on or after 1 January 2013. Section 24I(10) of the ITA deferred unrealised exchange gains and losses on exchange items between connected persons and groups companies until they were realised. However, section 24I(10) has been deleted and replaced with section 24I(10A)with effect from years of assessment commencing on or after 1 January 2013.

Transfer Pricing adjustments: What are the consequences?

Author: Billy Joubert (Deloitte) South Africa’s transfer pricing rules changed radically for years of assessment starting on or after 1 April 2012. This means that the consequences of such an adjustment being made now are very different, depending on whether the adjustment relates to a year of assessment commencing before – or after – 1 April 2012. Perhaps the most fundamental change was in relation to the mechanics for making transfer pricing adjustments. As regards the consequences of TP adjustments, these are also now very different. Many of the TP adjustments currently being made or contemplated relate to years of assessment commencing before 1 April 2012. For ease of reference we shall refer to such years as old years.

New Withholding Tax on Cross-Border Services

Author: Graeme Palmer (Commercial Department of Garlicke & Bousfield Inc) The Income Tax Act, 1962 was recently amended to provide for a new withholding tax on cross-border service fees.  According to the new law, a withholding tax of 15% must be levied on the amount of any service fee that is paid by any person to or for the benefit of any foreign person to the extent that the amount is regarded as having been received by or accrued to the foreign person from a source within South Africa. A foreign person is any person who is not a resident. 

International Tax – South African executives on foreign boards

Introduction South African companies are increasingly looking to global expansion to build their capabilities and expand their operations into foreign jurisdictions. Where South Africans serve on the boards of foreign companies and render services to foreign entities, they typically do so in terms of split employment contracts in respect of their services rendered within and outside of South Africa. In addition to the remuneration, they may also receive directors’ fees for services rendered to the boards. Their employment contracts with the foreign company and the requirement

International Tax – Exit charge CGT – Section 9H

The Taxation Laws Amendment Bill 39 of 2013 (the Bill) was tabled by the Minister of Finance on 24 October 2013. One of the interesting amendments in the Bill to the Income Tax Act 58 of 1962 (the Act) relates to the exit charge on interests in immovable property, especially in light of the recent amendments to the double tax treaty between South Africa and Mauritius, concluded on 17 May 2013.