Cliffe Dekker Hofmeyr updates

SARS speaks up: clarity provided on taxation of cryptocurrencies
Cliffe Dekker Hofmeyr
  • Corporate Tax
  • South Africa
  • May 25 2018

The South African Revenue Service (SARS) recently announced that it will continue to apply normal income tax rules to cryptocurrencies and expects affected taxpayers to declare cryptocurrency gains or losses as part of their taxable income. Due to the growing popularity of cryptocurrencies in South Africa and the absence of legislation concerning their taxation and regulation, SARS's decision to address this issue was widely anticipated.

Tax treatment of doubtful debts to be clarified through statutory amendments
Cliffe Dekker Hofmeyr
  • Corporate Tax
  • South Africa
  • May 18 2018

In line with the removal of the remnants of the administrative assessment system in 2015, the South African Revenue Services commissioner's discretion in respect of the doubtful debt allowance was to be deleted from the Income Tax Act. The intention behind this deletion was that, in future, the allowance would be claimed according to certain criteria set out in a public notice. However, according to the recent budget, it is now proposed that the criteria for determining the allowance be included in the act.

Tax rate adjustments
Cliffe Dekker Hofmeyr
  • Corporate Tax
  • South Africa
  • May 11 2018

​Although an increase of 1% in the value added tax rate was announced in the budget in February 2018, no adjustments have been made to the top four income tax brackets. Rather, below-inflation adjustments to the bottom three income tax brackets were announced. It was also announced that the primary, secondary and tertiary rebates will be partially adjusted to account for inflation.

VAT increase: what rate should be charged?
Cliffe Dekker Hofmeyr
  • Corporate Tax
  • South Africa
  • May 04 2018

The minister of finance recently announced that the standard rate of value added tax (VAT) will increase from the current rate of 14% to 15% from April 2018. Unfortunately, the date of introduction of the new rate leaves vendors little time to amend their systems and implement procedures to ensure that VAT is correctly accounted for from that date. There is also uncertainty as to when supplies still qualify for VAT at 14% and when VAT should be levied at 15%.

SARS issues new Guide to Understatement Penalties – a move towards greater certainty?
Cliffe Dekker Hofmeyr
  • Corporate Tax
  • South Africa
  • April 27 2018

One of the key changes to the tax administration regime following the Tax Administration Act's promulgation in 2012 was the conversion from the so-called 'additional tax' regime to the understatement penalty regime. While this shift towards greater certainty has been welcomed, a key challenge remains as the new regime's criteria are open to differing interpretations. In this regard, the South African Revenue Service recently published its Guide to Understatement Penalties.

Recent developments in PBO arena
Cliffe Dekker Hofmeyr
  • Corporate Tax
  • South Africa
  • April 20 2018

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.

Consecutive asset-for-share transactions
Cliffe Dekker Hofmeyr
  • Corporate Tax
  • South Africa
  • April 06 2018

Section 42 of the Income Tax Act allows taxpayers to transfer assets to a company free of immediate tax consequences, provided that certain requirements are met (ie, there is a roll over for tax purposes). However, certain anti-avoidance provisions may be triggered if the company that acquired the assets disposes of them within 18 months of acquisition. The South African Revenue Service recently provided some guidance on this matter in a binding private ruling.

Did the punishment fit the crime? Tax Court reduces understatement penalty imposed by SARS
Cliffe Dekker Hofmeyr
  • Corporate Tax
  • South Africa
  • March 30 2018

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.

Taxation of subsistence allowances – SARS issues new ruling
Cliffe Dekker Hofmeyr
  • Corporate Tax
  • South Africa
  • March 23 2018

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.

Another ruling on share schemes, but questions remain
Cliffe Dekker Hofmeyr
  • Corporate Tax
  • South Africa
  • March 16 2018

The South African Revenue Service (SARS) recently published a binding private ruling on the application of Paragraph 38(1) of the Eighth Schedule to the Income Tax Act to the distribution of shares by a trust to beneficiaries in the context of an employee share scheme. Although SARS stated that Paragraph 38(1) was not applicable to the trust's distribution of shares, the matter is complicated by the interaction between Section 8C of the act and the rules contained in the Eighth Schedule.

SARS provides further clarity on VCCs
Cliffe Dekker Hofmeyr
  • Corporate Tax
  • South Africa
  • March 09 2018

The South African Revenue Service (SARS) recently released a binding class ruling which addressed, among other things, the eligibility of a partner in an en commandite partnership to claim a deduction in respect of venture capital shares acquired by the partnership. SARS ruled that subject to the Income Tax Act, each class member will be entitled to claim the deduction pro rata to its proportionate share of the investment in the partnership.

A win against SARS: late delivery of Rule 31 statement
Cliffe Dekker Hofmeyr
  • Corporate Tax
  • South Africa
  • February 02 2018

The Tax Court recently delivered a judgment that will be of interest to any taxpayers involved in prolonged disputes with the South African Revenue Service (SARS), particularly where there are delays on the part of SARS. The case involved an application by the taxpayer for default judgment and an application by SARS for condonation for the late filing of its answering affidavit opposing the default judgment application.

Deductibility of legal expenses
Cliffe Dekker Hofmeyr
  • Corporate Tax
  • South Africa
  • January 26 2018

For the purposes of determining a party's taxable income derived from carrying on a trade, the Income Tax Act provides for the deduction of legal expenses which arise during or by reason of its ordinary trading operations. However, in order for a taxpayer to deduct legal expenses, they must relate to a claim, dispute or action at law. Further, they must have arisen during or by reason of the taxpayer's ordinary operations undertaken in the course of its trade and must not be of a capital nature.

VAT rulings: how and when to apply
Cliffe Dekker Hofmeyr
  • Corporate Tax
  • South Africa
  • December 22 2017

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.

No trade, no deduction: Tax Court issues Section 11(a) judgment
Cliffe Dekker Hofmeyr
  • Corporate Tax
  • South Africa
  • December 15 2017

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.

Further revisions to Income Tax Act's debt reduction rules announced
Cliffe Dekker Hofmeyr
  • Corporate Tax
  • South Africa
  • December 08 2017

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.

SARS publishes raft of notable Tax Court judgments
Cliffe Dekker Hofmeyr
  • Corporate Tax
  • South Africa
  • November 17 2017

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.

Tax Court grants condonation for late filing of appeal
Cliffe Dekker Hofmeyr
  • Corporate Tax
  • South Africa
  • November 10 2017

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.

BEPS effect: has Lord Tomlin's famous dictum become obsolete?
Cliffe Dekker Hofmeyr
  • Corporate Tax
  • South Africa
  • October 20 2017

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.

The golden rule: SARS clarifies vendors' entitlement to claim input tax for second-hand gold
Cliffe Dekker Hofmeyr
  • Corporate Tax
  • South Africa
  • October 13 2017

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.

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