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Corporate Tax

South Africa

The Tax Court recently gave judgment in favour of the taxpayer in a so-called ‘convertible loan’ case. The revenue authorities alleged that the taxpayer was dishonest and that it essentially acted fraudulently, or that it entered into a mere paper exercise. The court found that the transactions had the twofold purpose of enabling the taxpayer to borrow funding and of obtaining maximum tax benefit.

The treatment of interest-free loans has been under the spotlight pursuant to the recent judgment of the Supreme Court of Appeal in South African Revenue Service v Brummeria Renaissance. The court was asked to consider whether the taxpayer received an alleged benefit pursuant to the right to receive interest-free loans and, if so, whether such benefit fell within the definition of 'gross income'.

A number of amendments to the Income Act have been proposed by the 2008 Taxation Laws Amendment Bill, which focuses on non-residents. These proposals relate mainly to anti-avoidance provisions which are to be introduced into the revenue laws in circumstances where structures have been introduced so as to avoid the payment of secondary tax on companies.

Dividends are determined and taxed pursuant to the Revenue Laws Amendment Act 2007. They are exempt from income tax. However, when a company declares the dividend, it is subject to a 10% secondary tax. This tax will be changed during 2008 to create a true withholding tax on dividends. The recipients will be subject to a withholding tax of 10%, rather than the company declaring the dividend as liable for tax.

In a recent case the courts had an opportunity to consider the effect of double taxation treaties that have been concluded by South Africa. The judgment is significant in view of the fact that Article 14 of the double taxation treaty with Lesotho was not relevant with reference to the profits derived by the taxpayer.

The long-awaited draft Revenue Laws Amendment Bill 2007 was recently published for comment. A number of significant amendments are proposed to address company distributions and the associated consequences. To the extent that persons may have benefited from capital reductions in the period between October 1 2001 and July 1 2008, a tax liability will arise on July 1 2008 in respect of those capital distributions.

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Employment & Labour

South Africa

Overview
Including: Legislation and Agencies; Worker Representation; Applicants; Hiring Employees; Terms of Employment; Employers' Liability for Employees' Actions; Taxation of Employees; Employee-Created Intellectual Property; Business Transfers; Termination of Employment; Dispute Resolution; Trends.

Changes are being proposed to the foreign earnings exemption which may potentially affect South African tax liability in relation to foreign-earned remuneration. The exemption currently applies where a South African resident renders services outside South Africa. However, the scope of the exemption may be limited. Employers planning international assignments of employees should monitor developments in this area.

In November 2012 the minister of labour introduced the Employment Services Bill into the National Assembly. It is difficult to state what, if any, real impact will the bill have on the labour market should it be promulgated as law. Many of the endeavours under the bill will be given content only once the minister has consulted the Employment Services Board. Parliamentary hearings are expected to take place in the first quarter of 2013.

When retrenching employees, employers must comply with Section 189 of the Labour Relations Act. Recent Labour Appeal Court judgments suggest that in order to avoid hefty back pay and reinstatement orders, employers should carefully investigate whether retrenchments will fall under Section 189A and follow Section 189A process requirements carefully, and ensure that consultation is explored exhaustively.

A recent debt summit in Midrand has shown that there is still continued widespread abuse and exploitation of garnishee orders, especially in impoverished communities. Such an order is served by the sheriff (or messenger) of the court on the employer, ordering it to make deductions from an employee's salary or wage in settlement of a debt owed by the employee to a third-party creditor.

In SATAWU v Moloto NO the Constitutional Court considered the question of whether Section 64(1)(b) of the Labour Relations Act requires every participating employee to a strike to issue a strike notice (either personally or through a representative). This was a long-running and controversial case involving a nine-year dispute about the fairness of the dismissal of 64 workers.

An order of retrospective reinstatement can have a devastating impact on a business's finances and its industrial relations. As a recent case shows, an employer's response to unprotected strike action should be rational and measured; there should be no hasty decision to dismiss unprotected strikers, no matter how emotional the situation may become.

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Media & Entertainment

South Africa

Legislation has recently been passed to the effect that a withholding tax will be introduced on amounts payable to sportspersons. In particular, a withholding tax of 15% will be levied on all amounts received by or accruing to a sportsperson. The legislation will come into force on a date to be fixed in the Official Gazette.

Shipping & Transport

South Africa

The 2008 budget speech made mention that a tonnage tax would be introduced in South Africa. One of the aims of introducing a tonnage tax regime would be to revive the South African shipping industry and make it globally competitive by encouraging shipping companies to register their vessels in the South African Ship Register.

Telecommunications

South Africa

Parliament has recently proposed changes to the Regulation of Interception of Communications and Provision of Communication-Related Information Act which are set to ease the regulatory burden on mobile network operators and resellers of mobile airtime. Among other things, the changes affect the requirements for collection of customer identity documentation and the ways in which it may be stored.

On August 29 2008 the Pretoria High Court put an abrupt end to the managed liberalization of telecommunications in South Africa by ruling that some 300 providers of value-added network services may lay down their own infrastructures. In mid-September 2008 the minister applied to appeal against the judgment; it is likely that the minister’s appeal will be heard in 2009.

The Independent Communications Authority of South Africa recently published a draft position paper for comment which outlines the process that it proposes to follow when granting spectrum licences, particularly Worldwide Interoperability for Microwave Access (WiMAX) licences, in circumstances where demand exceeds supply.

Trade & Customs

South Africa

Revenue Service Customs Division officials will soon have certain extended powers. A new Section 4A has been inserted into the Customs and Excise Act which allows the commissioner to confer the power to carry out arrests for the purposes of enforcing the act. In terms of a new Section 4B, the commissioner will also determine a category of officer that will be authorized to possess firearms.

A recent decision of the Cape High Court makes it clear that importers should be able to prove that the goods they import do not infringe any protected IP rights and they do not have a right to be present or to adduce any evidence at an ex parte application for a seizure warrant.

The Customs and Excise Act provides that the commissioner for customs and excise may require all persons or any class of persons that participate in any activities regulated by the act to register in terms of Section 59A or its rules. Rule 59A.03(1) specifies the persons that are obliged to register and the persons that may apply for registration.

The South African Revenue Service recently clarified its position in regard to the cargo of the An Yue Jiang, a foreign-going vessel that was anchored outside Durban harbour and laden with Chinese weapons destined for post-election Zimbabwe. The following day the High Court ordered that the cargo could be offloaded in Durban, but could not be transported across South Africa to Zimbabwe.

The Supreme Court of Appeal recently ruled that it is reasonable for a customs officer to accept that goods which bear a 'Made in China' tag and Chinese inscriptions are imported goods. The judgment was delivered in favour of the South African Revenue Service.

Increased trade is one of the main reasons that led to the Revenue Service establishing a customs border control unit in 2006 to provide more visible and effective enforcement at South African borders, airports and harbours. Measures to enhance customs administration were announced in a recent budget speech.

White Collar Crime

South Africa

With corruption having become part and parcel of everyday life, South African companies have good reason to be worried. But they have as much reason to be worried about the ever-increasing number of anti-corruption laws that they are required to comply with. Not only do they need to consider local legislation, but a significant number of South African companies must now also comply with foreign laws.