Cliffe Dekker Hofmeyr updates

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.

SARS says "pay up", but court says "no": an important case on taxpayers' rights
Cliffe Dekker Hofmeyr
  • Corporate Tax
  • South Africa
  • September 15 2017

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.

Proposed amendments to Tax Administration Act
Cliffe Dekker Hofmeyr
  • Corporate Tax
  • South Africa
  • September 08 2017

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.

Getting out what you put in: a recap on input tax deductibility
Cliffe Dekker Hofmeyr
  • Corporate Tax
  • South Africa
  • September 01 2017

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.

New bill aims to clarify assumption of contingent liabilities under corporate reorganisation rules
Cliffe Dekker Hofmeyr
  • Corporate Tax
  • South Africa
  • August 25 2017

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.

Tax treatment of conversion of debt into equity and artificial repayment of debt
Cliffe Dekker Hofmeyr
  • Corporate Tax
  • South Africa
  • August 18 2017

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.

Foreign employment income exemption – is this the end?
Cliffe Dekker Hofmeyr
  • Corporate Tax
  • South Africa
  • August 11 2017

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.

Further clarification on VAT registration of non-executive directors
Cliffe Dekker Hofmeyr
  • Corporate Tax
  • South Africa
  • June 30 2017

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.

VAT on non-executive director remuneration: more questions than answers?
Cliffe Dekker Hofmeyr
  • Corporate Tax
  • South Africa
  • June 23 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.

Improvements to SARS dispute resolution process
Cliffe Dekker Hofmeyr
  • Corporate Tax
  • South Africa
  • June 09 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.

New SARS ruling pertaining to restructuring of property portfolio under corporate rules
Cliffe Dekker Hofmeyr
  • Corporate Tax
  • South Africa
  • May 26 2017

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.

Free transport for employees: taxable fringe benefit?
Cliffe Dekker Hofmeyr
  • Corporate Tax
  • South Africa
  • April 14 2017

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.

Ruling on unitised incentive scheme provides little clarity
Cliffe Dekker Hofmeyr
  • Corporate Tax
  • South Africa
  • March 31 2017

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.

Better late than never? Tax Court decision and recent legislative amendments regarding lodging objections
Cliffe Dekker Hofmeyr
  • Corporate Tax
  • South Africa
  • March 24 2017

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.

SARS clarifies taxation of non-executive directors
Cliffe Dekker Hofmeyr
  • Corporate Tax
  • South Africa
  • March 17 2017

The South African Revenue Service recently issued two binding general rulings which address how non-executive directors should account for tax on their earnings as directors. The rulings determined that companies must not withhold employee pay-as-you-earn tax on amounts paid to non-executive directors and that non-executive directors may claim deductions against their income for certain expenses, provided that they meet the requirements of the Income Tax Act (58/1962).

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