FAQ - 06 March 2014
04 March 2014
Posted by: Author: SAIT Technical
Author: SAIT Technical
1. Section 42 transaction, section 24BA & full time employment
Q: In order to not contravene s24BA, how do you value the full time
employment of one contributor to the s42 transaction?
Is it market value of salary, over expected years of employment, less
any expected remuneration at current value, but not sure as section 42 deals
with asset and excludes personal goodwill, so not sure at all.
A: It is recommended that you obtain advice on the detail of the
transaction. In principle, the following guidance would be useful to consider:
It is our understanding that the mother will contribute the
asset to the company in exchange for shares (x%) (s 42). The son will then
'earn' his shareholding (y%). If this understanding is not correct, the views
below may not be relevant.
Section 42 and section 24BA will only apply to the transaction
in which the mother contributes the asset to the company in exchange for the
company issuing shares to her. Section 24BA may however apply as it states that
it would apply where: "(b) the consideration contemplated in paragraph (a) is (before taking
into account any other transaction, operation, scheme, agreement or
understanding that directly or indirectly affects that consideration) different
from the consideration that would have applied had that asset been acquired in
exchange for the issue of those shares in terms of a transaction between
independent persons dealing at arm’s length." If I understand the risk you
require assistance on correctly, it would be that section 24BA could be
triggered if the mother receives too many/too few shares in relation to the
value of the total company taking into account the son's contribution?. Section
24BA provides no guidance on how it should be proved that the terms of the
transaction are similar to those in a transaction between independent persons
dealing at arm’s length. It is however submitted that in light of section
102(e) of the Tax Administration Act, the mother should be in a position where
she can argue that the transaction took place at arm's length terms if the
value placed on the son's contribution is based on a market related
Please bear in mind that from the son's perspective, section 8C
of the Income Tax Act is likely to apply if he does work/employment to earn
shares in the company. The value of such shares would be taxed as income
(please refer to section 8C for the detailed requirements). The son does not
enter into a section 42 transaction with the company.
2. Validity of tax invoice where invoicing is in foreign currency
have a client, that sells services to countries in North Africa. He invoices
them in dollars. He does not put the spot rate and rand equivalent on the
invoice. I am now doing his VAT returns. Further, the client
is exempt from paying VAT on foreign invoices. Will SARS have a problem with the
invoice if the rand equivalent is not shown on the invoice?
I use supporting documentation from the bank to show that the rand equivalent
of the dollar amount was paid?
terms of s 20(4) of the Value Added Tax Act, a tax invoice must be in the
currency of the Republic unless the supply is charged with tax under s 11
3. Section 10(1)(0) exemption
Q: I have a client who has worked on the offshore rigs and
qualifies under section (ii) any 12 month period
- 01/04/2011 to 31/03/2012
- 188 days out of the
- 82 and 89
SARS assessed him with the full amount being taxable.
I have objected, and now SARS have requested the
- Job description
- A letter from
the company/employer indicating the dates he left SA and returned to SA
He is still employed overseas, but not for the same company,
if we have provided copies of bank statements and passports reflecting the
entry and exit stamps, do we have to provide the documents requested?
Can they force his income to fall in the scope of Section
(i) during year of assessment?
A: In this instance, it
appears as if the provisions of either s 10(1)(o)(i) (as he is involved in
prospecting/exploration or mining, provided that a rig constitutes a ship
(please refer to the discussion in Interpretation Note 34 as to what forms of
marine mining falls within the ambit of s 10(1)(o)(i) as this may depend on the
terms of the person's engagement) or s10(1)(o)(ii) if the services were
rendered to an employer while physically "outside” the Republic may apply.
(It must be noted
that the borders of the Republic include territorial waters, which is a belt of
sea within 12 nautical miles (roughly 22,2km) beyond the coastline of the
country. Remuneration from services rendered beyond the coastline of the
Republic will therefore only be exempt if the services are rendered outside
the territorial waters.)
documentation requested by SARS that you refer to appears to relate to proving
that the person was outside of SA for purposes of providing services to an
employer (see Interpretation Note 16 para 4.5).
It is submitted that
certain income earned abroad may fall within the scope of both s 10(1)(o)(i)
and (ii) - in this case, a taxpayer would generally be indifferent as to which
of the two apply as both would exempt such income.