The process of applying for a value added tax (VAT) ruling is quite efficient and comes at no cost to the applicant. Such a ruling provides guidance as to the South African Revenue Service's views on certain transactions before entering into them and therefore mitigates the risks of proposed transactions. As there is virtually no risk in applying for a VAT ruling, it is advisable to apply for such a ruling in cases of uncertainty.
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 debt reduction provisions provided for in the Income Tax Act have been the subject of significant debate since their introduction. As a result, the National Treasury included various proposed changes to the provisions in the first draft of the Taxation Laws Amendment Bill 2017. Following consultation on the bill, the National Treasury recently published a revised bill, which contains further significant amendments.
Under the Tax Administration Act, a Tax Court judgment regarding an appeal under the dispute resolution provisions contained in the act must be published for general information purposes. The South African Revenue Service recently published a raft of Tax Court judgments that have thus far been handed down in 2017, which provide for interesting reading and cover a broad range of procedural and administrative issues.
The Tax Court recently addressed the question of whether a taxpayer is entitled to condonation for the late filing of an appeal under the Tax Administration Act. The Tax Court referred to a Constitutional Court judgment which found that a delay cannot be a determining factor in condonation applications. In addition, it noted that other important considerations should be taken into account, such as whether the omission or failure was the applicant's fault and the extent of the delay.
Following the implementation of the Organisation for Economic Cooperation and Development's Base Erosion and Profit Shifting Action Plans, which impose country-by-country reporting requirements on multinational enterprises, taxpayers can no longer – or at least cannot easily – strategically escape taxation by shifting their profits to low or no-tax jurisdictions. This is because the South African Revenue Service has become aware of issues regarding tax avoidance and is actively taking steps to address them.
Under the Value Added Tax Act, vendors were previously prohibited from claiming notional input tax deductions for the acquisition of second-hand goods comprising gold or goods containing gold in an attempt to curb fraudulent notional input tax deductions regarding the acquisition of gold and gold jewellery. However, the amendment had a negative impact on legitimate transactions in the industry, so the definition of second-hand goods was recently amended in order to limit the extent of the exclusion.
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.
There has been a great deal of uncertainty surrounding the claiming of value added tax (VAT) input credits, particularly where mixed taxable and non-taxable supplies are made and in the context of expenses relating to corporate actions. This uncertainty regarding the deductibility of input tax credits in certain instances has created a VAT risk for many vendors. The courts and the South African Revenue Service have differing views on this matter.
The National Treasury recently published the Draft Taxation Laws Amendment Bill 2017, which proposes to clarify the tax implications that arise when a person assumes contingent liabilities under the corporate reorganisation rules contained in the Income Tax Act. The proposal is to insert a new definition in Section 41 of the act, expressly stating that debt for the purposes of the corporate reorganisation rules includes contingent debt.
In order to assist companies in financial distress, it has been proposed that definitive rules dealing with the tax treatment of conversions of debt into equity be introduced. The Draft Taxation Laws Amendment Bill 2017 therefore proposes that the rules dealing with a debt that has been cancelled, waived or discharged should not apply to a debt that is owed by a debtor to a creditor that forms part of the same group of companies.
The Income Tax Act states that if a South African resident works in a foreign country for more than 183 days a year, with more than 60 of those days being continuous, any foreign employment income earned is exempt from tax. The draft Taxation Laws Amendment Bill 2017 proposes to repeal this exemption in its entirety, as the National Treasury has realised that it creates opportunities for double non-taxation. In addition, the exemption has led to the unequal treatment of public and private sector employees.
In February 2017 the South African Revenue Service published two binding general rulings which provided much-needed clarity on various interpretational issues, but failed to cover certain practical issues. Subsequent publications, media releases and revisions have offered further practical guidance on the manner in which companies and non-executive directors should have dealt with the taxation of their earnings before June 1 2017.
The South African Revenue Service recently issued Binding General Ruling 41, in which it ruled that non-executive directors (NEDs) should register and account for value added tax (VAT) on their directors' fees where the fees exceed the VAT registration threshold of R1 million in a 12-month period. SARS recently issued an updated ruling in which it determined that, in accordance with the VAT Act, the VAT registration liability date for NEDs was June 1 2017.
The South African Revenue Service (SARS) recently released a statement regarding improvements that have been introduced to the existing dispute resolution process. According to the statement, SARS is implementing these improvements as part of its ongoing commitment to deliver a better service to taxpayers. The statement refers to the implementation of an electronic request for reasons for an assessment and the introduction of a guided process for SARS's eFiling system, among other things.
The South African Revenue Service recently set out the tax consequences for the restructuring of an unlisted property portfolio under the Income Tax Act. The parties to the transaction were a listed company incorporated and resident in South Africa which carried on business as a long-term insurer (the applicant), a company incorporated and resident in South Africa and 100% owned by the applicant and a corporate real estate investment trust to be listed on the Johannesburg Stock Exchange.
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.
A recent South African Revenue Service ruling on an employee incentive scheme suggests that Paragraph 80(2) of Schedule Eight of the Income Tax Act (58/1962) applies in respect of any gains realised on a disposal of shares and must be disregarded by the trust where the gains are vested in the beneficiaries. However, the ruling is silent as to whether any such gains must be taken into account for the purposes of calculating the beneficiaries' aggregate capital gains or losses.
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.