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SEPTEMBER 2015 – ISSUE 192

CONTENTS

PUBLIC BENEFIT

ORGANISATIONS

2442. Income from trading

activities

REPORTABLE ARRANGEMENTS

2446. Extended to foreign trusts

GENERAL

2443. Taxation of interest

TAX ADMINISTRATION

2447. Onus of proof in regard to

penalties

2448. Invalid objections

EMPLOYEES’ TAX

2444. Company cars

VALUE ADDED TAX

2449. Voluntary registration

INTERNATIONAL TAX

2445. Cross- border service arrangements

SARS NEWS

2450. Interpretation notes, media

releases, rulings and other documents

PUBLIC BENEFIT ORGANISATIONS

2442. Income from trading activities Public benefit organisations (PBOs) play an important role in society as they

relieve the financial burden on the state to undertake public benefit activities.

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Tax exemptions and deductions are available to assist PBOs to achieve their

objectives.

The sole or main object of a PBO must be to conduct a public benefit activity.

The PBO's public benefit activity must, in accordance with section 30 of the

Income Tax Act of 1962 (the Act), be carried out in a non-profit manner and

with an altruistic or philanthropic intent.

Consequently, a PBO which carries on a public benefit activity with the sole

purpose of making a profit will act contrary to the fundamental objective of a

PBO. However, in a situation where a PBO, as part of undertaking a public

benefit activity, carries on a business undertaking or trading activity and earns

income, is the PBO contravening the provisions of section 30 of the Act? Put

differently, what will the tax consequences be where a PBO carries on

undertakings and activities for a profit, while the sole or main object remains

the conducting of a public benefit activity?

As a point of departure, section 10(1)(cN) of the Act permits a PBO to carry on

business undertakings or trading activities, provided that the sole or main object

of the PBO remains the carrying on of a public benefit activity as listed in Part I

of the Ninth Schedule to the Act. Prior to April 2006, the law regulating the

extent to which a PBO may conduct business undertakings or trading activities

was contained in section 30(3)(b)(iv) of the Act. In terms of this old rule, a

so-called 'all or nothing' approach was followed as PBOs were prohibited from

carrying on business undertakings or trading activities outside certain restricted

limits. A PBO which failed to comply with these provisions forfeited its status

as a tax exempt entity.

Currently, section 10(1)(cN) of the Act provides that the receipts and accruals

of a PBO that arise (i) otherwise than from any business undertaking or trading

activity or (ii) from a business undertaking or trading activity which falls within

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one of the four exemption categories listed in the section, will be exempt from

normal tax. The exemption categories under which the business undertaking or

trading activity must fall in order to render any receipts or accruals exempt from

tax, are the following:

Activities or undertakings which are integral and directly related to the

PBO's sole or principal objective.

Activities which are occasional in nature and are undertaken substantially

with assistance on a voluntary basis without compensation.

Activities approved by the Minister of Finance (Minister) by way of

notice in the Government Gazette, having regard to certain criteria.

Any activities that are not integral and directly related to the sole object

of the PBO, not of an occasional nature or not approved by the Minister,

to the extent that the receipts and accruals do not exceed the greater of

5% of the total receipts and accruals of the PBO for the tax year or

R200 000.

Each category has its own set of requirements, all of which must be met before

the particular exemption will apply. Each category will be discussed in more

detail below.

Integral and directly related trade

Section 10(1)(cN)(ii)(aa) of the Act provides that in order to qualify for this

exemption:

the undertaking or activity must be integral and directly related to the sole

or principal object which is the approved public benefit activity carried

on by the PBO;

substantially the whole of the undertaking or activity must be conducted

on a cost-recovery basis; and

the undertaking or activity should not result in unfair competition with

other taxable entities.

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Interpretation Note No. 24 (Issue 3) published by the South African Revenue

Service (SARS) on 4 February 2014 (IN 24), dealing with the partial taxation of

trading receipts of a PBO, provides that a business undertaking or trading

activity will be regarded as having been carried out on a basis substantially the

whole, if at least 85% or more of the undertaking or activity is directed towards

the recovery of costs (such as the costs of hiring venues, transport, equipment

etc.) and not the maximising of profits.

In addition, a PBO should not be in a more favourable position than a taxable

entity conducting the same business undertaking or trading activity. In this

regard, it is important for a PBO to determine whether there are other taxable

entities carrying on the same or similar business undertakings or trading

activities so as not to fall foul of this requirement.

SARS will consider each case on its own merits in order to determine whether a

PBO has such an unfair advantage.

Occasional trade

In order to qualify for exemption as an occasional trade, section

10(1)(cN)(ii)(bb) of the Act provides that the business undertaking or trading

activity must:

take place on an occasional or an infrequent basis; and

be undertaken substantially with assistance on a voluntary basis without

compensation.

IN 24 provides that an undertaking or activity of an occasional nature is "one

conducted on an irregular, infrequent basis or as a special event." Annual sales

at which donated second-hand clothing are sold, charity golf days involving

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donated or sponsored prizes or a gala dinner to raise funds are examples of an

activity of an occasional nature.

Further, any assistance in the business undertaking or trading activity must be

predominantly undertaken on a voluntary basis without compensation.

However, the costs incurred in the bona fide reimbursement of reasonable and

necessary out-of-pocket expenditure will be allowed.

Ministerial approval

According to section 10(1)(cN)(ii)(cc) of the Act, a business undertaking or

trading activity may be approved by the Minister by notice in the Gazette by

taking into account the following factors:

The scope and benevolent nature of the undertaking or activity.

The direct connection and interrelationship of the undertaking or activity

with the sole or principal object of the PBO.

Profitability of the undertaking or activity.

Level of economic distortion that will be caused by the tax exempt status

of the PBO carrying on the undertaking or activity.

IN 24 provides that any submission to the Minister must "demonstrate and

motivate the benefits of the business undertaking or trading activity for the

general public, together with reasons why it will not result in unfair competition

with other taxable entities, or erode the tax base." To date, no such undertakings

or activities have been approved by the Minister.

Basic exemption

To the extent that the business undertaking or trading activity of the PBO does

not fall within the first three categories listed above, the receipts and accruals of

such undertaking or activity will, subject to a basic exemption, be subject to

normal tax (section 10(1)(cN)(ii)(dd) of the Act).

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The basic exemption is the greater of 5% or R200 000 of the total receipts and

accruals of the PBO. In other words, the total receipts and accruals of any

business undertaking or trading activity which do not fall under the exemption

categories in section 10(1)(cN) of the Act, will be subject to tax.

However, the PBO will be entitled to a deduction which is equal to an amount

of 5% or R200 000 of the total receipts and accruals (whichever is greater). It is

important to note that the total receipts and accruals from all undertakings and

activities must be added together before the deduction of the basic exemption.

In light of the above, to the extent that a business undertaking or trading activity

of a PBO falls under one of the categories listed above, the receipts and accruals

from such undertaking or activity will be exempt from normal tax. However, in

the event that the undertaking or activity does not fall under any exemption

category, the PBO will be entitled to the basic exemption, while the remaining

receipts and accruals from undertakings or activities will be taxed at 28%.

Cliffe Dekker Hofmeyr

ITA: Sections 10(1)(cN), 30 and Part I of the Ninth Schedule to the Act

SARS: Interpretation Note No 24 (Issue 3) of 4 February 2014

GENERAL

2443. Taxation of interest The number of provisions contained in the Income Tax Act of 1962 (the Act)

which deal with the tax treatment of interest income and interest expenditure

has gradually increased over time. There are numerous aspects to be borne in

mind by resident and foreign companies when considering the income tax and

withholding tax implications which may arise in respect of transactions giving

rise to interest income and interest expenditure.

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This article serves as an outline of certain provisions which should be given

consideration when assessing the tax impact that interest income or expenditure

may have on the position of a company.

Interest deductions

The foundation of the tax treatment of interest lies in section 24J of the Act.

Section 24J of the Act applies to qualifying “instruments” and contains the

principle that an amount of interest expenditure is incurred by a taxpayer by

applying a constant compound rate of interest over the term of an instrument in

terms of various formulas contained in section 24J of the Act. No deduction of

interest is permitted if the interest is not incurred in the production of “income”

as defined. No deduction of interest expenditure will be permitted, for example,

if interest is incurred in the acquisition of shares which produce tax exempt

dividend income.

Notwithstanding the section 24J restriction of interest deductions to cases where

interest is incurred in the production of “income”, section 24O of the Act deems

the incurral of interest in terms of certain debts to be, inter alia, in the

production of income. Section 24O applies to debts issued by a company for the

purpose of financing certain acquisitions of equity shares in an “operating

company” as defined. Should the requirements of section 24O be met, then the

production of income restriction contained in section 24J will not apply.

Limitation of interest deductions

Section 23M of the Act limits the amount of interest that can be deducted by a

taxpayer and applies to debts directly or indirectly owed to a creditor that is in a

“controlling relationship” with that debtor. If the amount of interest paid by the

debtor is, inter alia, not subject to tax in the hands of the person to which the

interest accrues, the actual amount of interest to be permitted as a deduction will

be limited by way of the application of a formula contained in section 23M.

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Section 23N applies to interest incurred in respect of debts applied to finance

certain acquisitions of equity shares in an “operating company”, as well as to

finance the acquisition of assets where such acquisition is effected in terms of

some of the so called “corporate rules” provisions (sections 45 or 47 of the Act).

Section 23N limits the deduction of interest by way of the application of a

formula contained in section 23N in the year of assessment in which the

transaction is entered into as well as the five years immediately thereafter.

Taxation of interest income

Similar to what is set out in respect of section 24J in relation to interest

expenditure, section 24J of the Act applies the principle that interest received is

deemed to accrue to a taxpayer at a constant compounded rate of interest over

the term of an instrument. The specific amount of interest which is included in

the income of a taxpayer is calculated in terms of the various formulas

contained in section 24J of the Act.

Re-characterisation of interest income and expenditure

The hybrid debt and hybrid interest provisions are contained in sections 8F and

8FA of the Act. These sections re-characterise any amount of interest accrued

by a company in relation to a “hybrid debt instrument” and “hybrid interest” as

a dividend in specie. The implications for a debtor who makes hybrid payments

are that it will not be permitted a deduction of interest expenditure which it has

incurred. Furthermore, the re-characterisation of the interest to a dividend in

specie may give rise to a dividends tax liability for the debtor making payment

of the interest. The creditor who receives hybrid payments will be deemed to

have received payment of a dividend in specie. The tax implications of the

creditor will therefore be determined with reference to the provisions of the Act

which deal with the accrual and exemption, if relevant, of dividend income.

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Non-resident considerations

Whilst residents will usually be taxable as regards interest income, a domestic

exemption applies to any amount of South African sourced interest received by

or accrued to any non-resident unless the debt from which the interest arises is

effectively connected to a permanent establishment in South Africa.

The interest withholding tax applies to all South African sourced interest

payments made to non-residents and is imposed at the rate of 15% of the

amount of interest paid. Interest income is generally from a South African

source if it is attributable to an amount incurred by a resident, or if the interest is

derived from the utilisation of funds in South Africa by any person. Any amount

of South African sourced interest which is paid by any person to a non-resident

will therefore give rise to an interest withholding tax liability in the recipient’s

hands, and an obligation to withhold in the payer’s hands, subject to the

application of various exemptions and treaty relief.

Fair value taxation of interest

Section 24JB of the Act applies to a “covered person” as defined. This includes

a bank or an authorised user. To the extent that section 24JB applies, a covered

person will be permitted a deduction or will be required to include in its income,

all amounts taken into account in respect of financial assets or financial

liabilities that are recognised at fair value in profit or loss in terms of

International Accounting Standard 39 of IFRS – i.e. the tax treatment of the

relevant financial assets and liabilities will follow the accounting treatment

thereof.

Transactions resulting in interest income or expenditure in the hands of a

company require careful consideration for various reasons. Firstly, the scope of

the provisions outlined above is wide and the provisions may find application

and impact significantly in a number of scenarios. In addition, many provisions

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relating to the taxation of interest have been introduced fairly recently. The

interaction between such provisions in instances where more than one provision

applies to the same instrument may not be as clear upon deeper examination of

the particular wording of the legislation.

The conundrum of the interplay between interest deduction limitations,

interest withholding tax and double tax agreements

The deductibility of interest has for years been a contentious issue and this has

been reaffirmed with the introduction of section 23M into the Act with effect

from 1 January 2015. A further addition to the interest sphere of income tax is

the introduction of interest withholding tax provisions in sections 50A to 50H,

which came into effect on 1 March 2015.

Shorn of its technicalities, the purpose of section 23M is to limit the deduction

allowed to a resident in respect of any interest paid on debt owed to persons

which are not subject to tax in South Africa, and such persons are in a

controlling relationship (i.e. direct or indirect shareholdings of 50% or more).

Section 23M provides for a formula which should be adopted in determining

which portion of the interest incurred on such debt, if any, will be allowed as a

deduction. Interest withholding tax, on the other hand, is also levied (at a rate of

15%) on interest paid by any person to a non-resident to the extent that such

interest is regarded as being from a South African source.

Section 23M applies to the person paying the interest (i.e. the debtor) whilst

interest withholding tax is levied on the person receiving the interest (i.e. the

creditor).

One of the many questions which arises is how the introduction of the above

two sections would impact the quantity of foreign debt being injected into the

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South African market which is already under strain as a result of various

instabilities from an economic and political perspective.

Although both section 23M and the interest withholding tax section provide for

certain exemptions, the sections are not mutually exclusive and it raises the

question whether this was an unintentional omission by National Treasury, or

whether it was specifically intended that both sections would apply in all

instances.

From a technical perspective, section 23M(2) provides that the interest

deduction will be limited where the amount of interest incurred is not subject to

tax in the hands of the person to which the interest accrues. On the basis that

interest withholding tax is levied, the interest which accrues to the non-resident

would be subject to tax and the provisions of section 23M should not apply.

The above potentially sheds some light on the uncertainty regarding the

interplay between these two sections, although it does not specifically solve the

conundrum of adding a favourable double tax agreement (DTA) into the mix of

an already technical interpretation. Most favourable DTAs either reduce the

withholding tax on interest or, in some instances, even grant the sole taxing

right to the other jurisdiction and not to South Africa (i.e. the interest will not

suffer any tax in South Africa).

Although this puts the non-resident in a favourable position to the extent that

this results in the non-resident not being subject to tax on the interest accrued,

the resident paying the interest would be subject to a limitation on interest

incurred and payable to the non-resident. In these circumstances it is then

necessary to analyse whether the provisions of section 23M would apply.

Section 23M is intended to protect the tax base against base erosion. This is in

line with the objectives of the BEPS (i.e. Base Erosion and Profit Shifting)

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action plan driven by the OECD. It would, however, appear as if SARS’ main

concern is not the deduction but to safeguard the tax base from excessive

interest deductions in a group context. The concept of excessive expenditure is a

separate analysis in itself which has been considered in some instances by our

courts.

The prevailing question is, however, what the impact would be where the

interest deductions are not excessive and whether the application of the

provisions of section 23M may be mitigated through the application of a DTA

in terms of which South Africa has no taxing right.

ENSafrica

ITA: Sections 8F, 8FA, 23M, 23N, 24J, 24JB , 24O, 45, 47, 50A to 50H

IAS 39 of International Financial Reporting Standards

EMPLOYEES’ TAX

2444. Company cars With the continued review of tax legislation, whether prompted by the Davis

Tax Committee’s mandate or simply by a need to correct anomalies in current

drafting, more and more tax changes seem unavoidable. One such change was

introduced from 1 March 2015 to eliminate the inequities and anomalies in

determining the taxable benefit arising from an employee’s right to use a

company car.

Employees who are required to travel for business purposes and make use of a

company car are subject to fringe benefit tax of 3.25% (if there is a maintenance

plan in place) or 3.5% (with no maintenance plan) of the ‘determined value’ of

the company car.

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The changes introduced on 1 March, will only affect employees using company

cars ‘acquired’ after 1 March 2015, i.e. the calculation of the taxable benefit for

existing company cars will not be affected by the proposed change.

Company cars acquired before 1 March 2015

The ‘determined value’ of company cars acquired prior to 1 March 2015, is

defined as:

The original cost of the vehicle paid by the employer (excluding any

finance charge or interest payable), if the car was purchased through a

bona fide arm’s length agreement of sale or exchange.

The cash value of the car, if this car is financed through a lease as is

described in paragraph (b) of the definition of ‘instalment credit

agreement’.

The retail market value of the car, on the first date that the employer

obtained the right to use the vehicle, if the vehicle is financed through any

other type of lease agreement but not an ‘operating lease’.

The market value of the car, at the time that the employer first acquired

the vehicle or right of use of the vehicle, will apply to all other

circumstances not described above.

For employees of new and used car dealers or employees in the motor vehicle

rental industry, SARS accepted that the ‘determined value’ of the company car

was equal to the average cost of all stock in trade or rental vehicles on hand at

the end of the employer’s preceding year of assessment.

Furthermore, in the past, the determined value of motor manufacturers’

company cars was equal to the cost of manufacture of a car. Currently however,

these cars’ determined value is equal to the market value, or ‘Dealer Billing

Price’ of the car at the time the employer first obtained the right to use it.

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Company cars acquired after 1 March 2015

From the above it is clear that the ‘determined value’ will differ greatly

depending on the means of acquisition of the car or the nature of the employer’s

business. In an effort to align the determined value for all employers and

employees, the definition of determined value will be the actual retail market

value of the car, including VAT but excluding finance charges and interest,

regardless of the type of acquisition or the nature of the employer’s business.

The impact of a company car on the employee’s tax

If the vehicle was acquired under an operating lease (as defined) before 1 March

2015, the monthly taxable value used to determine the employee’s taxable

benefit, is equal to the employer’s actual cost incurred under that operating

lease and the cost of fuel in respect of that vehicle.

For vehicles acquired or financed after 1 March, the employee will be taxed on

the new deemed value, i.e. retail market value including VAT but excluding

finance charges and interest less any consideration paid by the employee

towards the cost of the vehicle.

80% of the taxable benefit will be subject to monthly PAYE but the percentage

may be reduced to 20% if the employer is satisfied that at least 80% of the use

of the company car will be for business purposes.

On submission of the employee’s personal tax return he/she will be permitted to

claim as a tax deduction an amount based on his/her proven business

kilometres. SARS will reduce the value placed on the private use of the car by

the proven business kilometres, provided it is substantiated by an accurate and

detailed logbook of business kilometres travelled.

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On 28 April 2015, National Treasury published the Regulations dealing with the

determination of the ‘retail market value’ of the right of use of a motor vehicle

fringe benefit.

A taxable fringe benefit arises where an employee is granted the right to use a

motor vehicle, owned by his employer, for private use. Travelling between the

employee's residence and place of work is included in private use. The

‘determined value’ of a motor vehicle is ordinarily used to calculate the value of

the private use.

The retail market value must be used to determine the fringe benefit for vehicles

acquired by an employer on or after 1 March 2015. Where the employer did not

acquire the vehicle, for example, if the employer is a vehicle manufacturer, the

Regulations apply to vehicles manufactured on or after 1 March 2015. If the

employer holds the vehicle under a lease, the Regulations apply where the right

of use was obtained by the employer on or after 1 March 2015. The Regulations

do not apply to vehicles where the use had already been granted prior to

1 March 2015.

Prior to the amendments, the cost of the vehicle to the employer or the ‘market

value’ was used to determine the benefit in a number of cases. This

discriminated in favour of employees of motor vehicle manufacturers when

compared to other employees. The ‘retail market value’ stipulated by the

Regulations must now be used in all cases.

In terms of the Regulations, the retail market value of motor vehicles

manufactured, obtained or acquired or the right of use of any motor vehicle

obtained by the employer is determined as follows:

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Years of Assessment starting on or after 1 March

2015 (pre 1

March

2016)

2016 (pre 1 March 2017)

2017 (pre 1 March 2018)

2018

Motor vehicle

manufacturers or

importers

New or

demonstration

motor vehicles

Dealer billing price (excl. VAT) less 10%

Dealer billing price (excl. VAT) less 5%

Dealer billing price (excl. VAT)

Dealer billing price (incl. VAT)

Pre-owned

motor vehicles

Cost to employer to acquire motor vehicle (excl. finance charge, interest or VAT payable by employer in respect of the employer's acquisition), or where the motor vehicle is acquired at no cost to employer, the market value and costs of repairs incurred to grant employee the right of use.

Cost to employer to acquire motor vehicle (excl. finance charge or interest payable by the employer in respect of employer's acquisition), or where the motor vehicle is acquired at no cost to the employer, the market value thereof, and costs of repairs incurred to grant employee the right use incl. VAT).

Motor vehicle dealers or rental companies

New or demonstration motor vehicles

Dealer billing price (excl. VAT).

An amount equal to dealer billing price (incl. VAT).

Pre-owned motor vehicles

Cost to employer to acquire motor vehicle (excl. finance charge, interest or VAT payable by employer in respect of the employer's acquisition), or where the motor vehicle is acquired at no cost to the employer, the market value thereof, and costs of repairs incurred to grant an employee the right of use.

Cost to employer to acquire motor vehicle (excl. finance charge, interest or VAT payable by employer in respect of the employer's acquisition), or where the motor vehicle is acquired at no cost to the employer, the market value thereof, and costs of repairs incurred to grant an employee the right of use.

Cases other than motor vehicle manufacturers, importers, dealers or rental companies

Price of acquisition of motor vehicle paid by employer (incl. VAT)

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In terms of the Regulations, ‘dealer billing price’ means ‘the recommended

selling price of a motor vehicle as determined by the manufacturer thereof in the

Republic or importer thereof in respect of the selling of motor vehicles to motor

vehicle dealers and motor vehicle rental companies’.

Grant Thornton and BDO

ITA: Seventh Schedule

Regulation No. R362 Government Gazette 38744 of 28 April 2015

INTERNATIONAL TAX

2445. Cross- border service arrangements

This article is a follow on from article 2429 (July 2015 Issue 190) setting out

some of the key considerations which need to be considered in the context of

management services, in particular, the requirement for non-residents to register

for income tax in South Africa as well as the withholding tax on service fees

which comes into effect on 1 January 2017.

There has been an increase in focus on cross-border payments in the context of

the current focus on base erosion and profit shifting. In this context,

management services, in general, have recently become a main focus area of the

South African Revenue Service (SARS) due to the substantial amounts of

money flowing from South Africa on an annual basis as payments for

management and related fees. This article deals with the transfer pricing,

exchange control and value-added tax considerations in relation to cross-border

service arrangements.

South African transfer pricing rules

Management fees are one of the key focus areas of the Organisation for

Economic Cooperation and Development’s (OECD) Base Erosion and Profit

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Shifting (BEPS) project, in particular under Action 10 (other high risk

transactions), in terms of which the OECD is directed to “[d]evelop rules to

prevent BEPS by engaging in transactions which would not, or would only very

rarely, occur between third parties. This will involve adopting transfer pricing

rules or special measures to provide protection against common types of base

eroding payments, such as management fees and head office expenses.”

Although South Africa is not a member country of the OECD, it was awarded

OECD observer status in 2004. South Africa is also a member of the OECD

BEPS Committee and continues to closely follow the guidance contained in the

OECD’s Transfer Pricing Guidelines for Multinational Enterprises and Tax

Administrations (OECD Guidelines) in respect of transfer pricing matters in the

absence of specific South African guidance.

Cross-border service arrangements between group entities which are connected

persons will be subject to the South African transfer pricing rules. On this basis,

such arrangements should be entered into on terms and conditions that would

have existed had the parties to that transaction been independent persons

dealing at arm’s length.

The South African transfer pricing rules in essence place an obligation on each

party to the services arrangement, which derives a tax benefit, to calculate its

taxable income or tax payable as if that services arrangement had been entered

into on terms and conditions that would have existed on an arm’s length basis.

The transfer pricing rules further provide for a secondary adjustment on the

basis that any “adjustment amount” (i.e. the difference between the tax payable

calculated in accordance with the arm’s length principle and otherwise) is

deemed to be a dividend consisting of a distribution of an asset in specie

declared and paid by the South African taxpayer to the non-resident connected

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person in the case of resident companies or a deemed donation in the case of

resident natural persons or trusts.

OECD Guidelines

According to the OECD Guidelines, which, as noted above, are accepted by

SARS as guidance in the absence of specific South African guidance, intra-

group services are provided where an activity is performed by a group member

for another group member, and such activity provides the recipient with

economic and/or commercial value. Intra-group services can encompass a wide

array of services including management, administrative, financial, technical and

commercial services.

In this regard, paragraph 7.5 of the OECD Guidelines provides that there are

two main issues in the analysis of intra-group services for transfer pricing

purposes, namely:

Whether an intra-group service that should be charged for, has been

provided.

What the charge should be in accordance with the arm’s length principle.

Definition of intra-group services

As noted above, the OECD Guidelines point out that intra-group services have

been provided if an activity is performed by a group member for another group

member and such activity provides the recipient with economic or commercial

value. This can be determined by considering whether an independent enterprise

in comparable circumstances would have been willing to pay for the activity if

performed for it by an independent enterprise or would have performed the

activity in-house for itself.

If the activity is not one for which the independent enterprise would have been

willing to pay or perform for itself, the activity ordinarily should not be

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considered as an intra-group service under the arm’s length principle. In

addition, no intra-group service would also be found in the case of activities

undertaken by one group member that merely duplicates a service that another

group member is already performing for itself or that is being performed for

such other group member by a third party.

Definition of shareholder activities

The OECD Guidelines recognise that an intra-group activity may be performed

relating to group members, even though those group members do not need the

activity (and would not be willing to pay for it if they were independent

enterprises).

The OECD Guidelines further state that such an activity would be one that a

group member (usually parent of regional holding company) performs solely

because of its ownership interest in one or more other group members, i.e. in its

capacity as shareholder and that this activity would not justify a charge to the

recipient companies and may be referred to as a “shareholder activity”.

Determining an arm’s length charge for intra-group services provided

Once it has been determined which of the activities performed qualify as intra-

group services, it is necessary to consider what an arm’s length charge for the

intra-group services provided would be. An arm’s length charge should be the

charge which would have been made and accepted between independent

enterprises in comparable circumstances.

In trying to determine the arm’s length price in relation to intra-group services,

the matter should be considered both from the perspective of the service

provider and from the perspective of the recipient of the service. In this respect,

relevant considerations include the value of the service to the recipient, and how

much a comparable independent enterprise would be prepared to pay for that

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service in comparable circumstances, as well as the costs to the service

provider.

In most instances, the cost plus method is regarded as the most appropriate

transfer pricing method in determining an arm’s length charge for intra-group

services, and the mark up to be applied is determined through benchmarking the

margins achieved by comparable third party service providers. Such

benchmarking is generally conducted on databases such as Bureau van Dijk’s

ORBIS or AMADEUS, or Thomson Reuters’ ONESOURCE, either on a gross

margin basis applying the cost plus method, or on a net margin basis applying

the transactional net margin method (TNMM).

Low value-adding intra-group services

The OECD also recently issued draft guidance on low value-adding intra-group

services providing, inter alia, that in respect of services qualifying as low value-

adding intra-group services as defined by the OECD, no further benchmarking

of the intra-group charge would be required and a uniform mark up of between

2% and 5% would be acceptable. According to the OECD, services that are

likely to be seen as low value-adding intra-group services are services which:

are of a supportive nature;

are not part of the core business of the multi-national enterprise group;

do not require the use of unique and valuable intangibles and do not lead

to the creation of unique and valuable intangibles; and

do not involve the assumption or control of substantial or significant risk

and do not give rise to the creation of significant risk.

The benefit of this proposed approach is that no expensive benchmarking would

be required. However, these services are narrowly defined, and many typical

head office services may not fall within these categories. It would therefore still

be important to evaluate the head office services provided in detail in order to

22 

 

determine whether same could potentially qualify as so-called low value-adding

intra-group services.

It is also unclear whether SARS will follow this guidance, as SARS seems to

have indicated that it is not in favour of safe harbours, as can be seen in the

Draft Interpretation Note on Thin Capitalisation.

Value-added tax (VAT)

South Africa applies a reverse VAT mechanism in respect of the supply of

imported services. The VAT liability is on the recipient of the imported

services. “Imported services” is defined as a supply of services that is made by a

supplier who is resident or carries on business outside of South Africa to a

recipient who is a resident of South Africa, to the extent that such services are

utilised or consumed in South Africa otherwise than for the purpose of making

taxable supplies. Subject to certain exceptions provided for in the VAT Act of

1991, it is therefore only services that are imported wholly or partly for private,

exempt or other non-taxable purposes that are subject to the reverse VAT

charge.

Exchange control rules applicable to cross-border service arrangements

Essentially, payments by South African exchange control residents of service

fees to non-resident related parties require prior approval from the Financial

Surveillance Department of the South African Reserve Bank (SARB).

This means that a formal application requesting approval for such service fees

needs to be prepared and submitted to the SARB for approval. Based on our

experience, the SARB generally approves such applications provided, inter alia,

the fees are considered to be market-related.

In the context of service fees paid by South African exchange control residents

to non-resident unrelated parties, Authorised Dealers (i.e. most commercial

23 

 

banks) may approve applications by resident entities requesting to make

payments in respect of consultancy, management and service agreements

entered into with non-residents provided that, inter alia, certain requirements

are met.

Authorised Dealers must view, where applicable, the agreement entered into

between the parties;

The non-resident service provider must be an unrelated party i.e. none of

the parties have a direct or indirect interest of shareholding in each other.

The fees to be paid are based on fixed or actual costs incurred plus, where

applicable, a profit margin of up to 10%. It is noted that where fees are

calculated on a percentage of turnover or minimum payments need to be

effected, an application to the SARB is required in respect thereof.

The application must be accompanied by documentary evidence

confirming the purpose and amount payable.

ENSafrica

ITA: Sections 51A - 51H

OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax

Administration Guidelines paragraph 7.5

Draft Interpretation Note on Thin Capitalisation

REPORTABLE ARRANGEMENTS

2446. Extended to foreign trusts

On 16 March 2015, the Commissioner for the South African Revenue Service

(SARS) published Government Notice No. 212 in terms of sections 35(2) and

36(4) of the Tax Administration Act of 2011 (the TAA) specifically listing

certain arrangements as so-called reportable arrangements (Notice). These listed

24 

 

arrangements are in addition to the arrangements that are already listed in

section 35(1) of the TAA.

The effect of an arrangement being regarded as a reportable arrangement for

purposes of section 35 read with the Notice is that, in terms of section 37 of the

TAA, a participant must disclose certain information to SARS within 45

business days of any arrangement qualifying as a reportable arrangement for

purposes of the TAA or, disclose the information within 45 days from the date

of becoming a participant to that reportable arrangement. In terms of section

37(3) of the TAA, a participant does not need to disclose the listed information

if the participant obtains a written statement from any other participant that the

other participant has disclosed the reportable arrangement.

One of the problematic arrangements listed in the Notice is:

"Any arrangement in terms of which –

(a) a person that is a resident makes any contribution or payment on or after

the date of publication of this notice to a trust that is not a resident and has or

acquires a beneficial interest in that trust; and

(b) the amount of all contributions or payments, whether made before or after

the date of publication of this notice, or the value of that interest exceeds or is

reasonably expected to exceed R10 million, excluding any contributions or

payments made to or beneficial interest acquired in any –

(i) portfolio comprised in any investment scheme contemplated in

paragraph (e)(ii) of the definition of “company” in section 1(1) of the

Income Tax Act, 1962; or

(ii) foreign investment entity as defined in section 1(1) of the Income Tax

Act, 1962".

One of the requirements for an arrangement relating to a foreign trust structure

to fall within the ambit of the Notice is that a South African tax resident must

25 

 

have or acquire a ‘beneficial interest’ in the trust. The difficulty with

determining whether one meets this requirement is that it is not clear what

exactly is meant by the words ‘beneficial interest’, as this term is not defined in

the TAA or the Income Tax Act of 1962 (the Act). These words are therefore

open to interpretation.

This is particularly relevant in the instance of a discretionary trust where the

trustees are afforded a discretion whether to vest any income or capital in a

beneficiary of the offshore trust. In instances where the offshore trust is a

discretionary trust, it is arguable that a beneficiary of the trust may not have a

beneficial interest in the offshore trust, as any interest which that beneficiary

may or may not receive is completely within the discretion of the trustees and

therefore not certain until such time as the discretion is exercised. Therefore, a

specific beneficiary may never gain a ‘beneficial interest’ in the offshore trust to

the extent that the trustees exercise their discretion by never vesting any capital

or income in such beneficiary. This appears to be in line with the decision of

Commissioner for Inland Revenue v Estate Merensky [1959] 22 SATC 343,

although the point was not specifically argued in that case.

The SARS Comprehensive Guide to Capital Gains Tax (draft Issue 5) appears

to provide some support for the argument that a beneficiary to a discretionary

trust has a contingent right, but that this right is no more than a spes (hope or an

expectation) until the trustees have exercised their discretion and the assets are

vested in the beneficiary. It appears to be SARS’ understanding that, as the

beneficiaries of a discretionary trust hold no more than a spes until the exercise

of the discretion by the trustees and the vesting of assets in the beneficiaries, the

beneficiaries have no beneficial interest in the trust as the value of their rights

cannot be quantified until the assets are vested in them.

26 

 

However, there is also a counter-argument, namely that it may be SARS’

intention to include any beneficial interest in a discretionary trust in the term

‘beneficial interest’, otherwise SARS would have expressly excluded this

scenario in the Notice.

The impact and application of the Notice in respect of offshore trusts therefore

appears to be somewhat uncertain and open to interpretation. At this stage it

certainly seems possible to argue the matter either way.

Cliffe Dekker Hofmeyr

TAA: Sections 35(1) 35(2), 36(4), 37(3)

Notice 212 in Government Gazette No. 38569 of 16 March 2015

SARS Comprehensive Guide to Capital Gains Tax (Draft Issue 5)

TAX ADMINISTRATION

2447. Onus of proof in regard to penalties

It is well-known and often said that it does not matter how good your case may

look in law; if the evidence is weak, your prospects of success are limited.

Litigants must therefore be astute to ensure that evidence that they lead relating

to events or occurrences is direct evidence given by persons who can attest to

the events because they witnessed them first hand. Failure in this regard proved

fatal to SARS in a matter in the Tax Court.

In the Tax Court, SARS bears the onus of proving that additional tax was

appropriately imposed. It is well established that the Tax Court is not a court of

appeal in the ordinary sense, but is a tribunal of review and revision (Bailey v

CIR [1933] 6 SATC 69).

An appeal to the Tax Court against an assessment by the Commissioner

involves a re-hearing, de novo, in contrast to an appeal in the ordinary courts

27 

 

which is decided on the written record of the proceedings in the court below,

without any further evidence being led or witnesses called in the course of the

appeal. (Hicklin v Secretary for Inland Revenue [1980] 41 SATC 179; Metcash

Trading Ltd v Commissioner, South African Revenue Service [2001] 63 SATC

13).

From this it follows that the Tax Court can consider the entire matter afresh and

substitute its own decision for that of the Commissioner.

An appeal to the Tax Court

The principle that an appeal to the Tax Court involves a reconsideration de novo

of the disputed issues is equally applicable to an appeal to the Tax Court against

a discretionary decision of the Commissioner.

The decision of the Johannesburg Tax Court in AB (Pty) Ltd v CSARS [2014]

ZATC 1 concerned the question whether the taxpayer was liable for additional

tax (some R32 million), penalties (some R1.6 million), and interest (some R5.2

million), imposed by SARS in terms of section 60 of the Value-Added Tax Act

of 1991(the VAT Act) in revised additional assessments spanning a four year

period.

Prior to the hearing, the taxpayer abandoned its appeal against the capital

amount of tax that had been assessed.

The factual background to the hearing

The background to the hearing in the Tax Court was that, following an audit of

the taxpayer’s affairs, SARS asserted that the taxpayer had under-declared its

VAT output tax, and requested the taxpayer, in writing, to provide an

explanation and supporting documents.

28 

 

The taxpayer (whose business involved the rendering of security services to its

customers) did not provide SARS with any of the requested supporting

documents but, by way of explanation, said that in terms of its contract with a

particular customer, the customer would be entitled to a commission, and that

the customer would provide the taxpayer with VAT-inclusive monthly invoices.

SARS requested the taxpayer to provide copies of all such invoices and proof of

payment, but the taxpayer did not do so.

The judgment recounts that SARS thereupon –

“due to the failure of the [taxpayer] to furnish it with any of the documentation

mentioned above, raised additional tax of 200% as it rightly concluded that such

failure on the part of the [taxpayer] constituted an intent by the [taxpayer] to

obtain an improper VAT refund with a view of defrauding the fiscus [and

further] as a result of the non-payment of VAT timeously by the [taxpayer],

imposed a 10% penalty on the capital amounts owed to it [and], further, as a

result of the non-payment of VAT timeously by the [taxpayer] levied interest on

the capital amounts owed to it.”

In a letter to SARS, the taxpayer denied any intention to defraud the fiscus and

said that all its tax affairs had been handled by an auditor whose judgment they

trusted.

The question before the Tax Court was whether the taxpayer was liable for

additional tax in terms of section 60 of the VAT Act.

The onus of proof

The judgment recounts (at para [3]) that –

“Counsel appearing before this court were in agreement that the Commissioner

had the duty to begin and has the onus to prove that the imposition of the

additional tax of 200% was correctly imposed.”

29 

 

SARS called only one witness, an auditor in its employ, who testified as to why

he had recommended to the relevant SARS committee that additional tax should

be imposed and at the rate of 200%.

That recommendation was then referred to a more senior committee which took

the decision to impose additional tax of 200%.

The court observed at paragraph [4] that –

“No witness was called to explain the decision of the senior committee. This

failure results in this court being unable to assess the correctness of the decision

of the committee to impose the penalty.”

The judgment of the Tax Court then goes on to say that –

“[5] Where the correctness of a discretionary decision, which is subject to

objection and appeal, is contested in a tax court, there is a re-hearing of the

whole matter, including the additional tax, by the tax court. Accordingly, the tax

court can consider the issue afresh and substitute the respondent’s decision in

that regard.”

“[6] The Commissioner, having failed to place any evidence before the court as

to how and why the senior committee arrived at a decision to impose the 200%

additional tax, failed to prove that the imposition of the additional tax was

justified and the imposition thereof cannot be upheld. This is more so by virtue

of the fact that the Commissioner, at least impliedly, conceded that the

imposition of the 200% additional tax was not justified by advising the court at

the outset of the hearing that it no longer sought 200% additional tax but

additional tax at the rate of 100%.

Having made this concession, it was incumbent upon the Commissioner to lead

evidence to show how this figure was arrived at. There is nothing before this

30 

 

court to determine the issue. In the circumstances, the Commissioner, who

accepted the onus of proving that the penalty was correctly imposed, failed to

discharge that onus.”

The Tax Court concluded its brief judgment by issuing an order that the

additional tax be set aside, and that the matter be referred back to the

Commissioner with the direction that the additional tax be remitted to nil.

Commentary and reflections

This is an extraordinary case. The amount of additional tax claimed by SARS

was substantial – in excess of R32 million. Prior to the hearing, the taxpayer had

not responded to SARS’s requests for explanations and supporting

documentation.

Presumably, the taxpayer came to the Tax Court with some plan of action for

arguing that additional tax should not have been imposed, or had been imposed

at too high a rate. In the event, it seems that the taxpayer led no evidence and

tabled no documents, and simply closed its case after the single witness for

SARS had testified.

Did SARS think that the testimony of its single witness would suffice to support

its assessment to additional tax? Did SARS not realise that the cardinal issue

was the reason why SARS had decided to impose additional tax, and to impose

it at a particular rate?

Clearly, its witness had decided that additional tax of 200% was appropriate and

no doubt he had his reasons. However, the operative decision in regard to the

imposition of additional tax had been made, not by that witness, but by a SARS

committee of which the witness was not a member.

31 

 

It may be inferred that even if the witness had been informed of the reasons why

the committee had decided on additional tax of 200%, he would not have been

allowed to testify to those reasons in the Tax Court because he was not party to

the committee’s deliberations and decision.

Even if he had been told what the committee’s reasons were, he would not have

been permitted to recount those reasons in court – this would have been hearsay

evidence, which is inadmissible in a court of law. A witness must testify to facts

that are within his personal knowledge, not to the opinions held by other people.

So this hearing in the Tax Court ended not with a bang, but a whimper. The

taxpayer emerged into the sunshine, a burden of R32 million having been lifted

off its shoulders without, it seems, having had to say a word.

PwC

TAA: Section 102

VAT: Section 60

2448. Invalid objections

In terms of section 104 of the Tax Administration Act of 2011 (the TAA), a

taxpayer who is aggrieved by an assessment made in respect of that taxpayer

may object to the assessment. Furthermore, in terms of section 106 of the TAA,

SARS must consider a valid objection in the manner and within the period

prescribed under the TAA and the rules promulgated under section 103 of the

TAA, prescribing the procedures to be followed in lodging an objection and

appeal against an assessment or decision subject to objection and appeal (the

Rules).

Under Rule 7(2), a taxpayer who lodges an objection must complete the

prescribed form in full and specify the grounds of objection in detail including

32 

 

the part or specific amount of the disputed assessment objected to, which

grounds of assessment are disputed and the documents required to substantiate

the grounds of objection that the taxpayer has not previously delivered to SARS

for purposes of the disputed assessment.

If a taxpayer has delivered an objection which does not comply with the

requirements of Rule 7(2), SARS may, in terms of Rule 7(4), regard the

objection as invalid and must notify the taxpayer of the ground for invalidity

within 30 days of the delivery of the invalid objection, and the taxpayer may

within 20 days following delivery of the notice submit a new objection.

It is therefore critical that taxpayers ensure that they complete the prescribed

forms (namely form NOO or ADR1) in full and specify their grounds of

objection in full as required under Rule 7(2) to avoid having their objections

being regarded as being invalid by SARS, as this causes a delay in the dispute

resolution process.

However, Rule 7 does not address the situation where the taxpayer may not be

in agreement with the SARS notice of invalidity if the taxpayer is legitimately

of the view that the requirements of Rule 7(2) have been complied with. It is

submitted that the Rules are deficient in this regard, as they do not afford

taxpayers the right to object where they are of the view that SARS’s decision to

regard the objection as invalid is wrong.

Taxpayers therefore only have the option of making an application to the Tax

Court under Rule 52(2)(b) of the Rules for an order that the objection is valid.

In trying to avoid the route of having to make an application to the Tax Court –

which can lead to considerable delays in finalising the main dispute – for an

order that the objection is valid, taxpayers have in some instances addressed

correspondence providing reasons to SARS why they are of the view that their

33 

 

objection is valid but have failed to elicit a response from SARS as the Rules do

not prescribe any period or obligation on SARS to respond to such

correspondence.

What is also of major concern is that SARS is issuing the notices of invalid

objection even after the 30 day period prescribed in Rule 7(4) has passed. This

causes unnecessary delays in finalising the dispute and is very prejudicial to

taxpayers as taxpayers have to resubmit their objections when they had a

legitimate expectation that their objection was valid and was being dealt with

accordingly by SARS.

It is therefore important that SARS exercises its discretionary powers to regard

an objection as invalid very carefully, and likewise, taxpayers should be

meticulous in preparing their objections so as to avoid unnecessary delays in the

resolution of their disputes with SARS.

ENSafrica

TAA: Sections 103, 104, 106

SARS: Rules governing objections and appeals: Rules 7(2), 7(4), 52(2)(b)

VALUE ADDED TAX

2449. Voluntary registration

A person is obliged to register as a value-added tax (VAT) vendor where such

person makes taxable supplies (comprising of standard and zero-rated supplies)

in excess of R1 million in a consecutive period of 12 months.

A person may, however, voluntarily register for VAT where the person has

already made taxable supplies exceeding R50 000 in a 12 month period, or

34 

 

where the person carries on an enterprise and has not yet exceeded the R50 000

threshold, but reasonably expects that the R50 000 threshold will be exceeded

within 12 months from the date of registration.

Small and start-up businesses are accordingly not required to register as vendors

up until such time that such businesses’ taxable income exceeds the R1 million

threshold.

Upon registration as a vendor with SARS, a vendor is required to levy and

account for VAT on goods or services supplied in the course of his enterprise,

and may claim input tax deductions incurred in respect of goods or services

acquired in the course of making taxable supplies.

A registered vendor is required to issue tax invoices in respect of supplies made

and to retain certain documentary proof in accordance with the Value-Added

Tax Act of 1991 (the VAT Act). A vendor is also required to complete and

submit VAT returns, and to make payment of any VAT amounts due to SARS

in accordance with his / her allocated tax period (generally on a bi-monthly

basis). Failure to adhere to these obligations may result in the imposition of

penalties and interest. These compliance requirements placed upon vendors may

prove to be administratively burdensome, time consuming and costly for small

or start-up businesses that do not have proper systems in place. Such businesses

may incur costs of acquiring the services of an accountant, as well as costs of

putting systems in place to ensure proper accounting and invoicing of clients.

Despite the compliance burden associated with the registration as a vendor as

well as the obligations and liability flowing therefrom; many small and start-up

businesses making standard-rated supplies often operate under the

misconception that it is always beneficial to register as a vendor with SARS

upon the commencement of their businesses so that they may be able to claim

35 

 

input tax deductions on their expenses incurred. The question of whether it is

beneficial to voluntarily register as a vendor depends, however, on a range of

factors, in particular, the nature of the business and the type of expenses

incurred by such business.

Although it will be beneficial for a vendor making zero-rated supplies to

register voluntarily, this is however not the case for a vendor making standard

rated supplies. This is because it is often the case that the biggest expense

incurred by small businesses, comprising in particular of service organisations

or professional businesses, will be payroll costs, i.e. staff costs in respect of

which no input tax may be deducted. The bulk of expenses incurred by these

businesses are accordingly non-deductible, leaving the vendor with a very small

percentage of available input tax deductions. If the cost and administrative

burden associated with VAT registration is weighed up against the monetary

benefit obtained from claiming input tax deductions upon registration, a

business may decide that it is more beneficial to remain unregistered, and to

instead consider increasing its profit margin earned on the supply of goods or

services by a percentage that is less than the standard VAT rate. These

businesses may then compete as a preferred supplier of non-vendor recipients,

or recipients who acquire the goods or services for a non-taxable purpose.

Furthermore, a supplier who makes supplies of the nature which typically do

not entitle the acquiring vendor to input tax deductions in respect thereof, e.g.

motor dealers or entertainment enterprises, could, instead of registering for

VAT, raise their profit margin by a percentage below the standard rate of VAT

and still remain quite competitive whilst earning more profits. This is on the

basis that vendors acquiring such goods or utilising such services will in any

event, subject to certain exceptions, not be entitled to claim an input tax

deduction in respect of such expenses incurred.

36 

 

Notwithstanding the above, certain types of businesses, for example,

manufacturing concerns and certain retailers may benefit from VAT registration

on the basis that such businesses incur higher levels of tax deductible overhead

expenses, such as the cost of plant and machinery, in proportion to their non-

deductible expenses, such as payroll costs and entertainment. It should also be

noted that despite the option to register for VAT voluntarily, and although not

required by law, many large businesses and even government departments

require their suppliers of goods or services to be registered as VAT vendors.

A business should accordingly consider the nature of expenses which it will

incur, the nature of the supplies that it will make and the nature of its client

base, so as to determine the cost benefit of voluntarily registering for VAT.

Regulations issued for voluntary registration

The Minister, on 29 May 2015, issued regulations in terms of section 74(1)

prescribing the requirements that must be met by a person applying for

voluntary registration in terms of section 23(3)(b)(ii) of the VAT Act. Section

23(3)(b)(ii) provides that a vendor may apply for voluntary registration where

such person carries on an enterprise and can reasonably be expected to make

taxable supplies in excess of R50 000 within 12 months from the date of

registration.

In terms of the regulations, the Commissioner will be satisfied that a person can

reasonably be expected to make taxable supplies in excess of R50 000 in the 12

months following the date of registration where:

In the case of a person who has made taxable supplies for more than two

months, such person has proof that the average value of taxable supplies

in the preceding two months prior to the date of application for

registration exceeded R4 200 per month.

In the case of a person who has made taxable supplies for only one month

preceding the date of application for registration, such person has proof

37 

 

that the value of the taxable supplies made for that month exceeded

R4 200.

The person is in terms of a contractual obligation in writing, required to

make taxable supplies in excess of R50 000 in the 12 months following

the date of registration.

The person has acquired finance from certain specified credit providers,

wherein credit has been provided to fund the expenditure incurred or to

be incurred in furtherance of the enterprise, and the total repayments in

the 12 months following the date of registration will exceed R50 000.

The person has proof of expenditure incurred or to be incurred in

connection with the furtherance of the enterprise as set out in a written

agreement, and proof of payment or a payment agreement evidencing

payment in the furtherance of the enterprise which has either exceeded

R50 000 at the date of application for registration; that will in any

consecutive period of 12 months beginning before the date of application

and ending after the date of application, exceed R50 000; or will in the 12

months following the date of application for registration exceed R50 000.

With effect from 1 April 2014, a further category of persons entitled to register

for VAT on the voluntary basis are persons that carry on an enterprise of a

nature as set out by the Minister in any regulation (section 23(3)(d) of the VAT

Act). The nature of the enterprise must be such that substantial costs are

incurred which are only likely to result in the making of taxable supplies after a

period of time. The Minister published the relevant regulations on 29 May 2015,

specifying the types of enterprises that will qualify for registration under this

category. The enterprise activities provided for in the regulations include

broadly: agriculture, farming, forestry and fisheries; mining; ship and aircraft

building; manufacture or assembly; property development, infrastructure

development and beneficiation.

38 

 

Prior to these regulations having been issued, vendors seeking to register with

SARS under this category have experienced practical difficulty in doing so as

the regulations setting out the types of permissible activities were not yet in

force. It is expected that, provided vendors seeking to register under this

category of registration comply with the regulations, they should now have no

difficulty in doing so.

ENSafrica

VAT: Sections 23(3)(b)(ii) and 23(3)(d), 74(1)

Regulations: 446 and 447 in Government Gazette No. 38836 of 29 May

2015

SARS NEWS

2450. Interpretation notes, media releases, rulings and other documents

Readers are reminded that the latest developments at SARS can be accessed on

their website http://www.sars.gov.za.

Editor: Ms S Khaki

Editorial Panel: Mr KG Karro (Chairman), Dr BJ Croome, Mr MA Khan,

Prof KI Mitchell, Prof JJ Roeleveld, Prof PG Surtees, Mr Z Mabhoza, Ms MC

Foster

The Integritax Newsletter is published as a service to members and associates of

The South African Institute of Chartered Accountants (SAICA) and includes

items selected from the newsletters of firms in public practice and commerce

and industry, as well as other contributors. The information contained herein is

for general guidance only and should not be used as a basis for action without

further research or specialist advice. The views of the authors are not

necessarily the views of SAICA.

39