Public consultation process could refine proposals
National Treasury and the South African Revenue Service recently published documents for public comment containing proposals aimed at limiting the deductibility of interest payments in certain circumstances.
The changes involve four categories of transactions: debt between connected persons, transfer pricing, acquisition debt and hybrid debt.
Prior to considering each of the above categories it is noteworthy that one of the key justifications or focus areas is to combat "arbitrage" situations - in other words, situations in which the borrower gets a tax deduction for the interest expense, whilst the lender is exempt from tax, or is taxed at a low rate, in respect of the interest income. Although this might seem a rational and reasonable course for government to take, a couple of points should be noted.
Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.