latest tax developmentslet us know for inclusion in next webinar. overview • roll overs; •...

Latest tax developmentsMay 2016

Introduction

• Monthly webinar

• 5th of 11 webinars

• Recent developments

– This one – May 2016;

– Cannot cover all developments in detail;

– Relevance of developments;

– Some will roll over to next month - time;

– If we missed something that you would like us to cover, please let us know for inclusion in next webinar.

Overview

• Roll overs;

• General developments;

• Practical issues;

• Topics not covered.

Overview

• IT 0038/2015 (6 March 2016)

• Issue 2 of IN 1: Provisional Tax Estimates

• VAT 411 – Guide for entertainment, accommodation and catering

• BRP 228: Section 8EA(1)

• BPR 229: Employer provided accommodation to employees

• Notice published in terms of section 162(2) prescribing the method of payment of tax

• VAT 1237 (24 March 2016)

• Binding Private Ruling 230: Disposal of an asset in terms of an asset-for-share transaction within 18 months of its acquisition in terms of an intra-group transaction

Roll Overs

• Binding Private Ruling 231 – Corporate restructuring by way of asset-for-share and amalgamation transactions

• Draft Interpretation Note on the taxation of REITs and controlled companies

• Binding Private Ruling 232 – Equity shares to be issued by restaurant company as part of an amalgamation transaction

• Binding Private Ruling 233 – Transfer of a part of a business to a fellow subsidiary

• VAT Notice R558

• Binding Private Ruling 234 – Asset-for-share and unbundling transaction not regulated by sections 42 and 46

General developments

• Tables of interest rates have been updated:

– Table 1: "Interest rates on outstanding taxes and interest rates payable on certain refunds of tax“: http://www.sars.gov.za/AllDocs/LegalDoclib/Rates/LAPD-Pub-IRT-2012-01%20-%20Interest%20Rate%20Table%201.pdf10.25%

– Table 2: “Interest rates payable on credit amounts“: http://www.sars.gov.za/AllDocs/LegalDoclib/Rates/LAPD-Pub-IRT-2012-02%20-%20Interest%20Rate%20Table%202.pdf6.25%

• BGR 33 – previous draft has now been finalised (veg oil)

• Issue 2 of IN 49 (VAT) (substantiating docs 16(3)(c)-(n))

• VAT 421 – Guide for short term insurance

http://www.sars.gov.za/AllDocs/LegalDoclib/Rates/LAPD-Pub-IRT-2012-01 - Interest Rate Table 1.pdf

http://www.sars.gov.za/AllDocs/LegalDoclib/Rates/LAPD-Pub-IRT-2012-02 - Interest Rate Table 2.pdf

General developments

• Notice published in terms of par 14(3)(a) of the Fourth Schedule prescribing the dates upon which employers must furnish returns (EMP501 submission)

– 1 March 2015 to 29 February 2016, must be rendered on or before 31 May 2016;

– 1 March 2016 to 31 August 2016, must be rendered on or before 31 October 2016.

• 2015/2016 Taxation in South Africa Guide has been released: http://www.sars.gov.za/AllDocs/OpsDocs/Guides/LAPD-Gen-G01%20-%20Taxation%20in%20South%20Africa%20-%20External%20Guide.pdf

http://www.sars.gov.za/AllDocs/OpsDocs/Guides/LAPD-Gen-G01 - Taxation in South Africa - External Guide.pdf

Practical issues

• When filing a NOO or NOA form on e-filing, only able to object against 5 items;

• E-filing returns have problems with certain internet browsers (Chromes seems to work best).

IT0038/2015 (4 March 2016)

• Issue:

– As a general rule, the taxpayer is permitted 30 days to object against an assessment, subject to a further 21-day extension

– After 51 days, the taxpayer may only object if “exceptional circumstances” can be proven

– The taxpayer sought to file an objection outside the permitted time period and the court was approached to evaluate whether the taxpayer could discharge the onus of proving “exceptional circumstances” to obtain an extension (S104 of the TAA)

IT0038/2015 (4 March 2016)

• Facts:

– Assessments were raised against the taxpayer during December 2014 in respect of UIF, SDL, Employees Tax, Secondary Tax on Companies and VAT

– The taxpayer filed an objection against the assessments on 5 June 2015 – the objection was out of time by 65 business days

– The objection was disallowed by SARS

IT0038/2015 (4 March 2016)

• Arguments:

– Taxpayer raised a number of extraneous arguments, which were irrelevant to the issue of exceptional circumstances, for example:

• 65 days is not such a long time compared to the 3-year prescription period

• SARS never considered exceptional circumstances prior to disallowance of the objection

– None of these circumstances were unusual or causally connected to the delay

IT0038/2015 (4 March 2016)

• Arguments (cont.):

– Submissions regarding exceptional circumstances were made and responded to as follows:

• Assessment and objections involved complex issues of law:

– No complexity demonstrated by taxpayer’s counsel

• Dies:

– Dies this would have had no impact on taxpayer’s opportunity to timeously lodge objection

• Negotiations were held with SARS when the objection became overdue:

– Counsel conceded that the alleged “series of meetings” was in reality only one meeting with SARS

IT0038/2015 (4 March 2016)

• Arguments (cont.):

– Submissions regarding exceptional circumstances were made and responded to as follows:

• Taxpayer terminated services of its auditor due to alleged incompetence:

– Court took judicial notice of the large number of attorneys’ firms in the taxpayer’s geographical area – taxpayer should have enquired as to the tax expertise of these attorneys sooner

• It took time for the taxpayer to obtain new professional advice:

– Court was not satisfied that the auditor was incompetent, but rather that the taxpayer was dissatisfied with SARS’ response to the auditor’s submissions

IT0038/2015 (4 March 2016)

• Judgement:

– Submissions regarding exceptional circumstances were not based on documents or other evidence

– None of the circumstances were exceptional or causally connected to the delay

– Court acknowledged its obligation to consider the taxpayer’s prospects of success in deciding whether or not to allow the extension:

• Counsel for the taxpayer did not submit any evidence in this regard, but only an advice from themselves to the taxpayer –could not accept prospects of success on the mere “say-so” of counsel

IT0038/2015 (4 March 2016)

• Judgement (cont.): – Court is sympathetic to ignorant taxpayer;

– However, the taxpayer should have sought professional tax advice immediately when its auditor’s submissions to SARS failed;

– There was no satisfactory explanation for the delay between December 2014 – June 2015, let alone a discharge of the onus of proving “exceptional circumstances”;

– Appeal dismissed with costs.

IN 01 Issue 2 – Provisional Tax

• Issue date: 30 March 2016;

• Paragraphs 17 to 27 of the Fourth Schedule;

• Provisional tax is not a separate tax payable by certain persons. It is merely a method used to collect normal tax, that will ultimately be payable for the year of assessment concerned, during the year.


• The First Period (August return)

– The estimate must be accurate and cannot be less than the basic amount unless circumstances justifies a lesser amount.

• Penalties

– The only penalty applicable to the first period is the penalty levied for the late payment of provisional tax.

– Penalty for late payment:

• A penalty of 10%, calculated on the amount of provisional tax not paid, will be imposed on the late payment of provisional tax for the first period.


• Penalties (cont.)

– SARS may remit all or a portion of the penalty under the provisions of the TA Act (section 217(3)) if satisfied that –

• Reasonable grounds exist for the late payment of provisional tax;

• The non-compliance has been remedied, that is, the full amount of the provisional tax due has been paid in full; and

• Either –

– The penalty was imposed for a first incidence of non-compliance; or

– The amount of the penalty involved was less than R2 000.

– This penalty, will also be remitted if the taxpayer is able to satisfy SARS that “exceptional circumstances” rendered the taxpayer incapable of complying with the obligation to make payment of provisional tax by the due date.


• Penalties (cont.)

– Exceptional circumstances include (section 218)

• Natural disasters or civil disturbances;

• Personal factors like illness, accidents, serious emotional distress;

• Acts by SARS like capturing errors, incorrect processing; and

• Other circumstances analogous seriousness

– The decision by SARS not to remit all or a part of the penalty is subject to objection and appeal.


• Interest

– The interest provisions in the TA Act are not yet effective. Interest which may be imposed under the provisional tax regime is still levied under the Act. The only interest which is charged in respect of the first period is when provisional tax is overdue, that is, the payment is late.

– Section 89quat charges interest on underpayment of the provisional tax.

– Interest is levied at the prescribed rate when the first provisional tax payment is not paid in full within the period prescribed for payment.


• The Second Period

– The estimate must be accurate. Cannot use 80%/90% of final taxable income as submission.

– Remember that second estimate cannot purely be the basic amount.

• Penalties (example are provided in the Note)

– Late payment penalties -

• A penalty of 10%, calculated on the amount of provisional tax not paid, will be imposed on the late payment of provisional tax for the first period.

– Underpayment of provisional tax as a result of underestimation penalty –


• Penalties (example are provided in the Note) (cont.)

– The calculation of the potential penalty depends on whether actual taxable income is more than R1 million or whether actual taxable income is equal to or less than R1 million.

– The penalty may be levied even if SARS has increased the estimate under paragraph 19(3).


• Actual taxable income is more than R1 million

– A penalty is levied if the second period estimate of taxable income for the tax year is less than 80% of actual taxable income. The amount of the penalty is 20% of the difference between the amount of normal tax payable for the tax year on 80% of actual taxable income, after taking into account any amount of employees’ tax and provisional tax paid by the end of the tax year. Lump sums and severance payments are not taken into account when determining the penalty.

IN 01 Issue 2 – Provisional Tax• Actual taxable income equal to or less than R1 million

– A penalty will be levied if the second period estimate of taxable income is less than –

• 90% of actual taxable income as finally determined; and

• The “basic amount” for the second period.

– a penalty will not be levied if the second period estimate of taxable income was greater than the applicable basic amount.

• The amount of the penalty is 20% of the difference between the lesser of –

– The amount of normal tax payable for the year of assessment on 90% of actual taxable income as finally determined; and

– The amount of normal tax payable for the tax year on the basic amount applicable to the second period, and the amount of employees’ tax and provisional tax paid by the end of the tax year.

IN 01 Issue 2 – Provisional Tax• Lump sums and severance payments are not taken into

account when determining the penalty.

• The penalty for the underpayment of tax as a result of underestimation must be reduced by any penalty for the late payment of tax imposed on the late payment of the second provisional tax payment.

• A taxpayer who fails to submit an estimate of taxable income for the second period or who submits the estimate on or after the due date of the subsequent provisional tax payment, is deemed for purposes of calculating the penalty on the underpayment as a result of underestimation to have submitted a nil estimate of taxable income.


• The deemed submission of a nil estimate of taxable income may have a significant impact on the penalty calculation.

• Taxpayers may apply to SARS to reduce the penalty for underestimating taxable income.

• SARS may remit all or part of the penalty if SARS is satisfied that the second period estimate of taxable income

– Was seriously calculated with due regard to any factors having a bearing on it; and was not deliberately or negligently understated.


• The word “Seriously” modifies the verb “calculate” by describing the degree to which a taxpayer must go in calculating the estimate. Thus, the calculation must be one which has been carefully considered and is thoughtful, earnest and sincere. A taxpayer must therefore have sensibly determined the amount of the estimate before SARS is able to reduce a penalty.

• Provisional taxpayers who merely rely on the basic amount to estimate the second period amount of taxable income are unlikely to meet these requirements for a reduction in the penalty for underestimating taxable income.


• SARS may also remit the whole or any portion of this penalty if satisfied that the failure to submit the estimate on time was not due to an intent to postpone or evade payment of provisional tax or income tax.

• The decision not to reduce the penalty is subject to objection and appeal.


• Interest

– In relation to the second period, interest is charged in two situations, namely, the –

• Late payment of provisional tax, that is, the payment is overdue; and

• Underpayment of provisional tax.

– Interest is levied at the prescribed rate on the underpayment of provisional tax from the effective date until the date of assessment of normal tax if actual taxable income as finally determined for the year of assessment exceeds –

• R20 000, in the case of a company; or

• R50 000, in any other case.

– An underpayment arises if the normal tax payable on actual taxable income as finally determined for the tax year exceeds the “credit amount”.


• Interest (cont.)

– The “credit amount” means the sum of –

• All provisional tax paid in respect of the year (first, second and third periods);

• Employees’ tax paid or withheld during the year; and

• Foreign tax credits that qualify as a rebate under section 6quat.

– The “effective date” in relation to any year of assessment is –

• If the provisional taxpayer is a company which has a tax year ending on the last day of February or is a person (other than a company) who has not been granted permission to render accounts for a period ending on a date other than the last day of February, the date falling seven months after the last day of such year; or

• In any other case, the date falling six months after the last day of such year.


• Interest (cont.)

– Interest received on the overpayment of provisional tax -

• Interest is payable by SARS to a provisional taxpayer if that provisional taxpayer has overpaid provisional tax on actual taxable income as finally determined for the year of assessment; and

• Provisional tax is considered to be overpaid if the credit amount exceeds the normal tax payable as defined in -

• That excess amount is more than R10 000; or

• Actual taxable income is more than R20 000 in the case of a company, or R50 000 in the case of a person other than a company.

– The interest that is payable to the taxpayer is calculated at the prescribed rate on the difference between the credit amount and the normal tax. It is calculated from the effective date until the date on which the difference is refunded to the taxpayer.


• The Third Period

• Penalties

– No penalties are levied in respect of the third period.

• Interest

– Interest will be levied at the prescribed rate from the effective date until the date of payment if the top-up payment is paid after the effective date.

• Refunds of provisional tax

– The difference between the sum of employees’ tax deducted and provisional tax paid in respect of the period that exceeds the total liability for normal tax as assessed will be refunded.

– The right to receive a refund is subject to SARS’s right to verify, inspect or audit the refund.


• Refunds of provisional tax (cont.)

– Requests to reallocate provisional tax payments between different periods or different taxpayers cannot be accommodated.

• Conclusion

– Provisional tax is a method used to collect normal tax which will ultimately be payable for a particular tax year. There are potentially three payments, two of which are compulsory.

– An IRP6 return is completed on e-filing and then submitted to SARS.

VAT411: Guide for Entertainment, Accommodation and Catering

• Chapter 1: Introduction

• Chapter 2: Definitions and concepts

• Chapter 3: Agent vs. principle

• Chapter 4: General rules on entertainment

• Chapter 5: Commercial accommodation explained

• Chapter 6: VAT treatment of supplies made by accommodation establishments

• Chapter 7: Invoicing, time and value of supply

• Chapter 8: Restaurant and catering business

• Chapter 9: Clubs, associations and similar bodies

• Only Chapter 4 covered in detail;


• Entertainment is defined in s1(1) as:

– “the provision of any food, beverages, accommodation, entertainment, amusement, recreation or hospitality of any kind by a vendor whether directly or indirectly to anyone in connection with an enterprise carried on by him”

• Guide mainly focusses on the hospitality type business which supply entertainment in the form of accommodation, food, beverages, and associated goods and services;

• Importance of the term “enterprise”;


• Minimum threshold for taxable supplies was R60 000, now with effect from 1 April 2016 the vendor is required to deregister if the value of taxable supplies does not exceed R120 000;


• Businesses supplying entertainment:

– General rule (section 17(2)(a)): a vendor is not entitled to a deduction of input tax where goods or services are acquired for the purposes of providing entertainment;

– The purpose of the rule is to deny input tax for vendors who are normally not in the business of supplying entertainment in the ordinary course of conducting an enterprise.

– Exceptions to the general disallowance rule:

• Provisos (i) to (ix) of section 17(2)(a) list specific circumstances under which input tax may be deducted.


• Exception 1: Businesses supplying entertainment (cont.):

– The exception allows vendors that make taxable supplies of entertainment to deduct input tax on goods and services acquired for the purposes of entertainment if entertainment is continuously or regularly supplied for a consideration.

– The exception is structured so that input tax will only be allowed to the extent that taxable supplies of entertainment are made for a charge which covers all the direct and indirect costs of providing such entertainment or for a charge equal to the open market value of the entertainment.

– This provision introduces an anti-abuse rule in the form of a bona fide business test for enterprises that supply entertainment.


• Businesses supplying entertainment (cont.):

– Supplies made to customers and clients:

• The goods or services acquired must be in the ordinary course of an enterprise which continuously or regularly supplies entertainment;

• The entertainment must be supplied for a consideration which covers the costs or is at least equal to the open market value of that entertainment; unless

o Entertainment supplied as part of a bona fide promotion if that supply is similar in all respects to the entertainment normally supplied by that vendor

o Entertainment consisting of the supply of food in a situation where not all the food was consumed (welfare or employees)


• Businesses supplying entertainment (cont.):

– Supplies to employees and connected persons:

• Part (bb) of proviso (i) to section 17(2)(a) focuses on a situation where entertainment is supplied by a vendor to any employee or office holder of the vendor, or any connected person in relation to the vendor;

• The general rules for deducting input tax in this situation are much the same as those explained above;

• Part (bb) of the proviso therefore recognises that where a vendor supplies entertainment to employees or connected persons in relation to the vendor, the risk of personal consumption or abusive practices is much greater and therefore the law provides for less flexibility in accommodating exceptions to the rule.


• Exception 2: Personal subsistence

– Section 17(2)(a)(ii) “such goods or services are acquired by the vendor for the consumption or enjoyment by that vendor (including, where the vendor is a partnership, a member of such partnership), an employee, office holder of such vendor, or a self-employed natural person in respect of a meal, refreshment or accommodation, in respect of any night that such vendor or member is by reason of the vendor's enterprise or, in the case of such employee, office holder or self-employed natural person, he or she is by reason of the duties of his or her employment, office or contractual relationship, obliged to spend away from his or her usual place of residence and from his or her usual working-place…”


• Personal subsistence:

– Section 17(2)(a)(ii) “…For the purposes of this section, the term 'self-employed natural person' shall mean a person to whom an amount is paid or is payable in the course of any trade carried on by him or her independently of the person by whom such amount is paid or payable and of the person to whom the services have been or are to be rendered, as contemplated in the proviso to paragraph (ii) of the exclusions to the definition of 'remuneration' in paragraph 1 of the Fourth Schedule to the Income Tax Act”;

– Proviso (ii) to section 17(2)(a) provides for a situation where employees incur personal subsistence expenditure on behalf of the employer in connection with their employment.



– The provision is limited in its application to instances where the personal subsistence is incurred by:

• the vendor (for example sole proprietor or member of a partnership), or in the case of a vendor which is a juristic person, the official representative of the vendor (for example; member of a close corporation, director of a company etc.);

• an employee or office holder of the vendor; or

• a self-employed natural person in certain instances.

– When an allowance is paid to an employee to cover such expenses as a part of that person’s remuneration, no input tax credit will be allowed to the employer.



– The subsistence expenses must also be as a result of the following:

• The person must be spending at least one night away from their usual place of residence and usual working-place.

– The usual place of residence of a person is the place to which that person would normally return at the end of a working day.

– The usual working-place of a person is the location, such as a factory or office, from where the employer conducts its business and where the employee or independent contractor is based.



– The subsistence expenses must also be as a result of the following:

• The person must, by reason of the prescribed duties of employment, office or contractual relationship, be away from his or her usual place of residence and usual working-place for the purpose of the vendor’s enterprise of making taxable supplies.

• It must be evident from the contractual obligations that if the vendor engages a self-employed natural person (independent contractor) to conduct business at a place which is away from that person’s usual place of residence and usual working-place, that the vendor on whose behalf the business is conducted is the person who is liable for the subsistence expenses.

VAT411: Guide for Entertainment, Accommodation and Catering• Exception 3: Taxable transportation services

– Section 17(2)(a)(iii) “such goods or services consist of entertainment supplied by the vendor as operator of any conveyance to a passenger or crew member, in such conveyance during a journey, where such entertainment is supplied as part of or in conjunction with the transport service supplied by the vendor, where the supply of such transport service is a taxable supply;”

– This section allows vendors to deduct input tax on the entertainment expenses incurred in order to provide meals, refreshments or other entertainment as an integral part of a taxable transportation service.

– No input tax may be deducted on the provision of meals or refreshments to passengers or crew where the road or railway transport is exempt from VAT.


• Exception 4: Seminars or similar events

– Section 17(2)(a)(iv) “such goods or services consist of a meal or refreshment supplied by the vendor as organizer of a seminar or similar event to a participant in such seminar or similar event, the supply of such meal or refreshment is made during the course of or immediately before or after such seminar or similar event and a charge which covers the cost of such meal or refreshment is made by the vendor to the recipient”

– Section 17(2)(a)(iv) provides that the vendor as organiser of a seminar or similar event may deduct input tax on purchases of goods or services for the supply of meals or refreshments to participants at seminars and similar events.


• Seminars or similar events:

– input tax may be deducted where the entrance fee or other charge to participate in the seminar or similar event is sufficient to cover all the direct and indirect costs thereof, including any meals and/or refreshments which are supplied as an integral part of that event.


• Exception 5: Municipal recreational facilities

– Section 17(2)(a)(v) “such goods or services are acquired by a municipality for the purpose of providing sporting or recreational facilities or public amenities to the public;”

– A municipality may deduct input tax on expenses incurred to provide and maintain public recreational facilities such as sports fields, public parks and gardens, zoos, caravan parks, hiking trails and game farms.

– This includes cases where the charge is insufficient to cover the cost of providing the sporting or recreational facilities as well as cases where there is no explicit or direct charge.


• Exception 6: Welfare organisations

– Section 17(2)(a)(vi) “such goods or services are acquired by a welfare organization, for the purpose of making supplies in the furtherance of its aims and objects;”

– A welfare organisation may deduct input tax in respect of any entertainment expenses incurred for the purpose of conducting welfare activities in the furtherance of the organisation’s aims and objectives.


• Exception 7: Medical care facilities

– Section 17(2)(a)(vii) “such goods or services are acquired by a vendor for an employee or office holder of such vendor, that are incidental to the admission into a medical care facility”

– This provision allows an employer that pays for the costs of hospitalisation of an employee, to deduct input tax in respect of any VAT incurred on the medical fees and any incidental entertainment provided in the form of meals and accommodation to the employee whilst recovering in the medical care facility.

– Entertainment is regarded a fringe benefit and therefore the employer cannot declare output tax in such cases.


• Exception 8: Ships’ crew

– Section 17(2)(a)(viii) “such goods or services consist of a meal or refreshment supplied by the vendor as operator of any ship or vessel (otherwise than in the circumstances contemplated in subparagraph (iii)) in such ship or vessel to a crew member of such ship or vessel, where such meal or refreshment is supplied in the course of making a taxable supply by that vendor;”

– Proviso (viii) allows vendors that operate ships or vessels at sea in the ordinary course of conducting their enterprises (for example, fishing vessels, oil rigs, etc.) to deduct input tax in respect of meals and refreshments supplied to the crew on board those ships or vessels.


• Exception 9: Prizes

– Section 17(2)(a)(ix) “that entertainment is acquired by the vendor for the purpose of awarding that entertainment as a prize contemplated in section 16(3)(d) in consequence of a supply contemplated in section 8(13);”

– This is intended mainly for vendors who conduct betting businesses such as casinos where entertainment is continuously or regularly supplied as competition prizes which are integrally linked to the promotion of other products normally supplied by that vendor.

– It could also apply to once-off events which have an entertainment prize such as a holiday, provided that the transaction which gave rise to the entertainment prize was a betting transaction.


• Exception 9: Prizes (cont.)

– The input tax deduction is subject to the following conditions:

• It is limited to the actual VAT incurred on the original cost of acquisition (for example, it is not based on the open market value or the advertised retail value).

• The VAT may only be deducted in the tax period in which the prize is awarded, and not in the tax period when the entertainment is originally acquired.

VAT411: Guide for Entertainment, Accommodation and Catering• Foreign donor funded projects:

– A development project which is funded under an international agreement between the South African government and a foreign government, or other International Development Agencies (“IDA”);

– Normally provide that funds donated should be used for activities and not taxes under SA law;

– Section 17(2A) provides that in such cases, the general disallowance rule under section 17(2)(a) in respect of entertainment expenses does not apply to foreign donor funded projects.

– The input tax is limited to the VAT incurred on goods or services acquired for the project;

– It does not entitle the public authority concerned to deduct input tax on its own VAT-inclusive capital and operating costs.

BPR 228: SECTION 8EA(1)

• Issued 13 May 2016

• Parties to the proposed transaction:

– The applicant: A company incorporated in SA;

– The co-applicant: A finance provider;

– The project company: A newly established company that is incorporated and resident in SA.

• This binding private ruling is valid for a period of 3 years from 31 October 2015.


• Description of the transaction:

The Applicant

The Project Company

25% BEE Partner

100%

The Holding Company

80% Debt

20% Equity

The Co-Applicant


• Description of the transaction (cont.):

• The Project Company intends to undertake a project where it intends to produce goods and services and sell the goods for consideration;

• The Applicant will fund the subscription price of the ordinary shares in the Project company out of the proceeds of:

– issuing ordinary shares to its holding company; and

– issuing preference shares to the Co-Applicant.


• Description of the transaction (cont.):

• The Co-Applicant requires that the Applicant’s holding company provides the Co-Applicant with:

– a guarantee for any amount which the Applicant has contracted to pay to the Co-Applicant, but fails to pay in respect of the preference shares; and

– a cession and pledge by the Applicant’s holding company of its shares in the Applicant.

• The Project company is expected to be operational within eighteen months from the commencement of the construction of its plant.


• Ruling:

– The use of funds derived from the issue of the preference shares to subscribe for the ordinary shares in the Project company will not be applied for a "qualifying purpose" as defined in section 8EA(1), as the Project company will not be an “operating company” as defined.

Binding Private Ruling 229

• Issued 14 April 2016

• Applies for 5 years from 1 March 2015

• Deals with – Employer provided accommodation to employees

• It cover Paragraphs 2(a) and 5(1), (2) and (3A) of the Seventh Schedule to the Act

• The ruling determines whether vacant stands acquired by qualifying employees from their employer be “immovable property”

• Parties to the proposed transaction

– The Applicant – A Company incorporated in and a resident of South Africa

Binding Private Ruling 229 – Cont.

• Applicant is a mining company and according to the Mineral and Petroleum Resources Development Act No 28 of 2002 (the MPRDA) they are required to improve the housing standards of its employees.

• The Applicant sells vacant stand to qualifying employees who will on the employee’s own cost erect a house within a prescribed timeframe.

• The purchase price of each stand will be less than the market value.


• Ruling

– The stands constitute “immovable property” as envisaged in paragraph 5(3A).

– No value will be placed on a stand if

* the market value does not exceed R450,000

* the remuneration proxy of the employee does not exceed

R250,000 for the year of assessment.

* the employee is not a connected person to the Applicant

Notice 437 : Section 162(2)

• Section 162 of the Act deals with the determination of the time and manner of Payment of Tax.

• Section 162(2) states that SARS may prescribe the method of payment of tax, including electronically.

• The notice declares, With effect from 1 May 2016, any payment made in respect of taxes collected in terms of a “tax Act” must be made either electronically or at an approved financial institution unless a SARS official, designated for this purpose by the Commissioner, having regard to the circumstances, directs otherwise.

VAT1237 (24 March 2016)

• Issues

– Upon late payment of VAT by a taxpayer, interest as well as penalties may be levied by SARS

– Section 39(7) of the VAT Act regulates the payment of interest, and was amended on 1 April 2010

– In this case, the question was whether or not interest should be levied on the late payment of VAT, which would depend on whether the old or amended version of section 39(7) would be applicable to the facts

VAT1237 (24 March 2016)

• Facts

– The taxpayer entered into a transaction in terms of which it sold assets to company D during December 2009

– Company D believed that the transaction was subject to 0% VAT and did not levy VAT on the purchase price

– The taxpayer did not pay VAT to SARS

– During November 2012 the parties agreed that VAT had been payable in respect of the transaction

– Taxpayer then paid VAT to SARS

– SARS imposed 10% penalty and levied interest on the late payment of VAT in terms of section 39(1) of the VAT Act

VAT1237 (24 March 2016)

• Facts (cont.)

– SARS remitted the penalty but not the interest levied

– Prior to amendment section 39(7) determined that interest could be remitted if:

• the late payment did not result in financial loss to the State; or

• the taxpayer did not benefit financially due to the non-payment.

– Section 39(7) now provides that SARS may remit interest if:

• the late payment was due to circumstances beyond the taxpayer’s control

VAT1237 (24 March 2016)

• Arguments:

– On behalf of the taxpayer:

• VAT became due on 25 March 2010

• Penalties and interest both became due on 25 March 2010 – as such the old section 39(7) should apply as it read on 25 March 2010

• Alternatively, if the amended section 39(7) applied, then the taxpayer should be liable only for interest that became due during VAT periods after 1 April 2010, i.e. from 1 July 2010

– On behalf of SARS:

• Section 39(7) came into operation on 1 April 2010 and is applicable to the interest imposed

• Under section 39(1)(a)(ii) interest becomes payable only on or after the first day of the month following the date when VAT became due, which in this case was coincidentally also on 1 April 2010

VAT1237 (24 March 2016)

• Judgement:

– The court found that the new section 39(7) should be applied to consider whether the interest imposed in terms of s39(1)(a)(ii) should be imposed

– The court accepted that the matter should be remitted to SARS, because the taxpayer never had the opportunity to consider and respond to SARS’ assessment in terms of the amended section 39(7) – this decision would be the “least prejudicial to the taxpayer”

– Each party to pay own costs

Binding Private Ruling 230

• Issued on 4 May 2016.

• Deals with the disposal of an asset, in terms of an asset-for-share transaction, within 18 months of its acquisition ito an intra-group transaction (the “Disposal”).

• Concerns sections 42(1), 42(2) and 45(5) of the Income Tax Act, No. 58 of 1962 (the “IT Act”).

• The ruling sets out the income tax consequences under section 45(5) iro the Disposal


• The Parties:

o The Applicant is a company incorporated in and resident in RSA;

o Company “A” and Company “B” are companies incorporated in and resident in RSA and are each a wholly-owned subsidiary of the Applicant;

o Company “C” is a company incorporated in and resident in RSA, in which the Applicant holds an equity interest.

Applicant Company

Company A

Company B

Company C


• Details of Transaction:

o Company A held equity interest in Company C, as a capital asset transferred to Applicant at market value (the

“Transaction”);

o The Transaction was treated as an intra-group transaction under section 45 of IT Act;

o Applicant holds shares in Company C as a capital asset;

o Applicant to transfer its shareholding in Company C to Company B, by way of asset-for-share transaction, as contemplated by section 42 of the IT Act.


• Ruling:

- The disposal by the Applicant of the shares in Company C ito the Transaction, within 18 months of the acquisition of those shares ito the intra-group transaction, will not result in a capital gain under section 45(5)(a)(i) of the IT Act.

- Ruling is valid for the year of assessment during which the Transaction takes place.

Not covered

• BGR 34: Supply of management services to a superannuation scheme

• Erratum to Regulation R.210

• Draft Regulations for purposes of paragraph (b) of the definition of "international tax standard" in section 1, specifying the country-by-country reporting standard for multinational enterprises

• Draft Rates and Monetary Amounts and Amendment Revenue Laws Bill

• Notice published in terms of section 12R regarding activities to which section 12R does not apply

Thank you

• Thank you for listening

• Thanks to my technical team

Tax Consulting South Africa

Nico Theron

[email protected]

www.taxconsulting.co.za

mailto:[email protected]

http://www.taxconsulting.co.za/

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