Documents needed to claim a s6quat tax credit
19 March 2015
Posted by: Author: SAIT Technical
Author: SAIT Technical
I have a South African Company client that renders services
in Botswana to a Botswana company. The client issues invoices in South Africa.
When payment is received, the Botswana Company has deducted a withholding tax.
1. Must the Botswana Company issue some sort of
written confirmation to enable the RSA Company to claim a Botswana tax paid as
a s6quat credit tax?
2. If the RSA Company does has an assessed loss,
will the benefit of the credit be carried forward to the next year?
A: Question 1
The withholding taxes will only be considered if the company
is in possession of the withholding tax certificate issued by the Botswana
Revenue services for the year of assessment.
Please ensure the accuracy of the disclosure on the ITR14 with regard to
e.g. foreign sales of the taxpayer and the net foreign income.
SARS does not necessarily deduct the withholding tax (WHT)
on assessment, which requires the taxpayer to lodge an objection. Please keep all the supporting documentation
readily available for this purposes, especially the proof to SARS the source of
Proviso (b) to sec 20(1) of the Income Tax Act (No. 58 of
1962) (hereinafter referred to as ‘the Act’) states the following:
‘... there shall not be set off against any amount—
(a) . . . . . .
(b) derived by any person from a source within the Republic,
(i) assessed loss incurred by such person during such year;
(ii) any balance of assessed loss incurred in any previous
year of assessment,
in carrying on any trade outside the Republic
This proviso therefore has the effect that an assessed loss
incurred from carrying on a trade outside of South Africa may not be set off
against any income derived from a South African source.
In order for a company to carry forward an assessed loss or
balance of assessed loss to the following year of assessment, it must have
carried on a trade during the relevant year of assessment. This principle
originated from SA Bazaars (Pty) Ltd v CIR 1952 (4) SA 505 (A), 18 SATC 240.
The ‘term’ trade is defined in sec 1 of the Act as follow:
‘...includes every profession, trade, business, employment,
calling, occupation or venture, including the letting of any property and the
use of or the grant of permission to use any patent as defined in the Patents
Act or any design as defined in the Designs Act or any trade mark as defined in
the Trade Marks Act or any copyright as defined in the Copyright Act or any
other property which is of a similar nature.’
The above definition does not distinguish as to whether a
trade must be carried on inside or outside of South Africa order for it to be
classified as such. It is therefore submitted that irrespective as to whether
the trade is deemed to be carried on in or outside South Africa, as long as the
taxpayer ‘carried on a trade’ which needs to be determined by case law, the
company would be entitled to carry forward its assessed loss to the next year
of assessment. It is submitted that a company need not necessarily carry on a
trade during the whole year of assessment, any period of trading will suffice,
as long as it involves an active step to produce income.
As stated above the balance of the assessed loss may be
carried forward. Special recognition would however have to be given to proviso
(b) of sec 20(1) in the event that the trade is deemed to be carried on outside
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
primary resources when taking a decision.