Will section 23M of the ITA apply if the recipient of interest is subjected to withholding tax
20 January 2015
Posted by: Author: SAIT Technical
Author: SAIT Technical
section 23M of the ITA apply if the recipient of interest is subjected to
withholding tax on interest?
Q: A SA subsidiary company received a loan from its non -resident holding
company. The non-resident company will be subjected to withholding tax on
interest. Will section 23M; limit the interest deduction for the SA subsidiary.
Will section 23M apply if the recipient of interest is subjected to withholding
tax on interest?
With regards to your query section 23M of the Income Tax Act (ITA), will only
apply if the interest is not "subject to tax” (s23M (2) (b) (ii) (AA)). There
is no separate definition of "tax” in section 23M ITA and section 1 of the ITA
definition applies, which merely includes "tax and any penalty”.
Section 50B(1) of the ITA states that "there must be levied for the benefit
of the National Revenue fund a tax, to be known as the withholding tax (WHT) on
interest”. This tax is levied on the foreign recipient per section 50C
(1) of the ITA who is liable therefore. In our view the WHT on interest does
therefore constitute a "tax” for the purposes of section 1 and section 23M of
the ITA and the interest would have been subject to tax in the hand of the
person to whom it accrues, if the WHT on interest was applied to such amount.
Disclaimer: Nothing in this query and answer should be construed as
constituting tax advice or a tax opinion. An expert should be consulted for
advice based on the facts and circumstances of each transaction/case. Even
though great care has been taken to ensure the accuracy of the answer, SAIT do
not accept any responsibility for consequences of decisions taken based on this
query and answer. It remains your own responsibility to consult the relevant
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