The Supreme Court of Appeal recently ruled on the South African Revenue Service's (SARS's) right to impose understatement penalties on a taxpayer and the quantum thereof. The judgment will be welcomed by taxpayers involved in disputes with SARS regarding understatement penalties, as it reaffirms that the Tax Court cannot, of its own volition, increase an understatement penalty.
This article delves into the National Treasury's proposal to address abusive arrangements aimed at avoiding the anti-dividend stripping provisions in the Income Tax Act. It first discusses the history of the amendments, followed by an examination of the anti-dividend stripping provisions and a brief discussion of the National Treasury's proposal in the 2019 Budget.
When the domestic treasury management company (DTMC) regime came into effect in 2013, a 'DTMC' was defined in the Income Tax Act as a company that is incorporated or deemed to be incorporated in South Africa. The 2019 Budget explains that in 2017 the Income Tax Act was amended to remove this requirement, which conflicts with the South African Reserve Bank's requirements, prompting calls for reassessment.
In a recent unreported case regarding a taxpayer that conducted business in the wholesale and retail industry, the Tax Court had to decide whether the taxpayer could claim the employment tax incentive under the Employment Tax Incentive Act for certain periods. In its decision, the court not only considered the provisions of the act, but also applied various principles of South African labour law.
The South African Revenue Service (SARS) recently issued a binding private ruling dealing with relief from the double taxation of interest under the double tax agreement between South Africa and Brazil. SARS ruled that the agreement grants exclusive taxing rights to Brazil in respect of the interest that applicants receive on bonds issued by the Brazilian government, which means that the interest will not be taxable in South Africa.
The National Treasury and the South African Revenue Service recently appeared before Parliament's Standing Committee on Finance to provide it with a further update regarding some of the proposals contained in the draft Taxation Laws Amendment Bill published earlier in 2018. These amendments will come into force once the bill has been passed by Parliament, signed by the president and published in the Government Gazette.
The South African Revenue Service recently published Binding Private Ruling 309, which deals with the disposal of assets by public benefit organisations. Specifically, the ruling deals with the application of the definition of 'gross income' in the Income Tax Act and the capital gains tax exemption in the Eighth Schedule to the act.
United Manganese of Kalahari (Proprietary) Limited (UMK) recently applied to the High Court for declaratory relief in relation to the correct interpretation and application of Section 6(3)(b) of the Mineral and Petroleum Resources Royalty Act. The South African Revenue Service alleged that UMK had incorrectly deducted transport and distribution costs from gross sales and, in so doing, had estimated these costs instead of using actual costs incurred.
Under Section 93 of the Tax Administration Act, there are five circumstances under which the South African Revenue Service may issue a reduced assessment in order to reduce a person's tax liability. While Section 93 makes it possible to 'skin a cat' (ie, reduce tax liability) in more ways than one, taxpayers should be mindful of the requirements that must be met and the correct process to follow in order to achieve the desired result.
In deciding whether to invest abroad and which country to invest in, taxpayers will usually consider whether South Africa has a double tax agreement with that country. However, taxpayers should also ensure that they comply with South Africa's exchange control rules when making an offshore investment. One of the biggest pitfalls to avoid in this regard is the creation of a loop structure, which is considered to be a serious contravention of these rules.
The Explanatory Memorandum on the Taxation Laws Amendment Bill notes that the 2017 amendments to the Income Tax Act which provided that the anti-avoidance rules on dividend stripping override the corporate reorganisation rules may affect some legitimate transactions. As such, a number of amendments have been proposed to remedy this issue.
A recent judgment dealt with the pertinent and relevant issue of whether the South African Revenue Service (SARS) was legally justified in refusing to pay certain value added tax (VAT) refunds to a taxpayer on the grounds that the taxpayer owed an income tax debt, which SARS alleged was due and payable. The judgment should be seen as positive by taxpayers that have experienced difficulties in getting SARS to pay VAT refunds.
In recent years, taxpayers have frequently been unsuccessful in their disputes with the South African Revenue Service, especially where the dispute has involved the interpretation or application of the substantive provisions of tax legislation. However, where disputes have involved compliance with the procedural requirements of tax legislation, taxpayers have generally had greater success.
The Davis Tax Committee (DTC) recently issued a media statement announcing the publication of four additional final reports and the conclusion of its work based on its terms of reference. The closing report on the work done by the DTC states that the 12 sub-committees consulted widely and that a number of themes emerged from the consultations with various stakeholders. The closing report also mentions some of the challenges faced by the DTC.
The South African Revenue Service (SARS) recently issued a press release regarding its intention to investigate possible tax non-compliance in the religious sector. According to SARS, the investigation is in response to, among other things, general reports which have suggested that certain religious organisations and leaders are contravening tax laws and enriching themselves at the expense of tax compliance and their altruistic and philanthropic purpose.
The imposition of understatement penalties under Chapter 16 of the Tax Administration Act, and the factors to consider when imposing such a penalty, is an issue unresolved by the courts. However, a recent Tax Court judgment has set out some helpful principles in this regard.
The South African Revenue Service recently issued Binding Private Ruling 291, which addresses the taxation of subsistence allowances paid by employers to their employees in certain circumstances. The ruling appears to offer guidance regarding the application of Section 8 of the Income Tax Act and suggests that employers may have some leeway in structuring the subsistence allowances that they provide to their employees.
The Tax Court recently issued its decision in a case concerning a taxpayer's claim for R90 million as an expense or loss during the 2007 assessment year, the deduction of which was prohibited by the South African Revenue Service. Among other things, the court had to consider whether the taxpayer had been carrying on the trade of selling coal when it had paid the R90 million and whether the expense had been incurred in the production of income or for trade purposes.
The Mthatha High Court recently ruled that the South African Revenue Service (SARS) had failed to comply with Section 96 of the Tax Administration Act in ordering an additional assessment of a taxpayer's income tax. The case reaffirms the fact that just as taxpayers have a duty to pay tax, SARS has duties that it must fulfil in order to be entitled to collect this tax.
South African Revenue Services decisions are generally subject to the internal remedy available under Section 9 of the Tax Administration Act. However, decisions that are given effect to in an assessment or notice of assessment are excluded, since assessments generally have the separate remedy of objection and appeal. A recent memorandum on the Draft Tax Administration Laws Amendment Bill proposes that such decisions be subject to the remedy under Section 9 of the act.
In many businesses, it is common for employers to provide their employees with free or low-cost transport services from their homes to their place of employment. However, under the Income Tax Act, such arrangements could constitute a taxable fringe benefit in the hands of the employees, depending on the circumstances and facts of the case. The South African Revenue Service recently released Binding Private Ruling 262, which deals with this issue.
In a recent case, the Tax Court held that the taxpayer had failed to prove that exceptional circumstances had caused the delay in lodging its objection to an assessment issued by the South African Revenue Service (SARS) and dismissed the appeal. In light of the National Treasury's budget shortfall, SARS may be more aggressive in collecting tax in future. This judgment should therefore be taken seriously.
When disputing a tax debt, especially one involving the complex issue of unlawful tax avoidance, taxpayers should always exercise caution. This sentiment was echoed in a recent judgment which made reference to a taxpayer's dispute with the South African Revenue Service (SARS). SARS had rejected the taxpayer's claim for input tax and concluded that the transaction had been a scheme to obtain an undue tax benefit under Section 73 of the Value Added Tax Act.
Following its announcement in the 2016 Budget Speech, the legislation governing the Special Voluntary Disclosure Programme (SVDP) has finally come into effect. The amount payable under the SVDP will be equal to the amount of the receipts and accruals not declared to the South African Revenue Service, as required by the Estate Duty Act or the Income Tax Act, from which an asset – situated outside South Africa and held between March 1 2010 and February 28 2015 – was wholly or partly derived.
An efficient advertising campaign is often the difference between a successful and an unsuccessful business venture. However, when advertising the price of their products, businesses must observe the Value Added Tax (VAT) Act. The Advertising Standards Authority of South Africa Directorate recently addressed this matter and upheld a complaint regarding the advertised prices in a print ad for safety wear, which had excluded VAT.
The Tax Court recently considered whether the South African Revenue Service was correct to levy an understatement penalty on a taxpayer that had incorrectly claimed the deductible allowance of enhancement income provided for by the Income Tax Act. The taxpayer submitted that the understatement had arisen as a result of a bona fide inadvertent error, as contemplated in Section 222(1) of the Tax Administration Act, and that it therefore did not have to pay a penalty.
A number of cases have examined whether an interim order or decision which does not dispose of a case finally is appealable. In a recent Supreme Court of Appeal case, a taxpayer wanted to appeal, among other things, the Tax Court's decision regarding the onus of proof and duty to adduce evidence first. The court's judgment provides an important warning for taxpayers to consider the applicable legislation and whether an appeal is worthwhile.
The South African Revenue Service (SARS) recently issued a binding private ruling regarding the donations-related tax consequences of a proposed transaction which would introduce a black economic empowerment (BEE) shareholder into a group of companies in order to benefit all of the entities within the group in respect of their BEE scorecard ratings and increase the profitability of the applicant.
Following the recent release of the first Draft Taxation Laws Amendment Bill 2016 and its explanatory memorandum, the proposed amendments applicable to trusts and employee share schemes have received significant attention. However, another proposed amendment with potentially far-reaching consequences has received little attention, but could result in a taxpayer paying tax at one rate one day and another the next, as determined by the minister of finance.
In today's tough economic climate, it is common for companies to consider alternative funding arrangements to fund their activities, which minimises cash-flow obligations to third parties in the short term, while also ensuring compliance with relevant tax legislation. One option to consider is the creation of a loan account by a debtor in favour of a creditor. The Tax Court recently had to address this issue and, specifically, the consequences of Section 22(3) of the Value Added Tax Act.
The Tax Court recently determined whether input tax could be claimed by a close corporation which carried on business in the courier industry on the purchase of a vehicle used to make taxable supplies. Taxpayers whose business involves making taxable supplies and which are vendors in terms of the Value Added Tax Act should ensure that they can claim an input tax deduction on motor vehicles purchased for their business.
Section 12O of the Income Tax Act provides an incentive to stimulate the domestic production of films in the form of an exemption from normal tax for income derived from the exploitation rights of a film. The South African Revenue Service recently issued guidance reflecting its interpretation of this provision.