SARS wants to know about your arrangements
27 July 2015
Posted by: Author: Barry Visser
Author: Barry Visser (Grant Thornton)
It was widely anticipated that SARS would add to their list of reportable arrangements and it did just that. Here is a list of new reportable arrangements you must know about or risk falling foul of the requirements of the Tax Administration Act (TAA) and potentially be subjected to massive penalties.
What is a reportable arrangement?
A reportable arrangement is one that has certain characteristics (as listed in s35(1) of the TAA) or is listed by SARS in a public notice (in terms of s35(2) of the TAA). In these instances, the person who promotes the arrangement (called a promoter) and the person who may derive a tax benefit from the arrangement (called the participant) must report the arrangement to SARS.
New reportable arrangements
From 16 March 2015, these are reportable arrangements in addition to the arrangements with the features set out in s35(1) of the TAA:
Hybrid equity instruments
Any arrangement that would previously have qualified as a hybrid equity instrument for purposes of sections 8E or 8F of the Income Tax Act, with the exceptions for certain listed instruments, where the prescribed period of redemption is 10 years.
Where a company enters into a share buy-back arrangement, for an aggregate amount exceeding R10million and that company issues the shares within 12 months after the arrangement becomes effective or the date of the buy-back.
Contributions or payments made by a South African resident, who has a beneficial interest in a non-resident trust or acquires such an interest, and the aggregate amount of contributions and payments to such trust, before and after 16 March 2015, exceeds or is reasonably expected to exceed R10million.
However, certain non-resident trusts, with portfolios comprised in any investment scheme in bonds or listed securities, qualify as REITs or are a foreign investment entity as defined in section 1(1) of the Income Tax Act, and are therefore excluded.
Where a controlling interest is held directly or indirectly, or the controlling interest is acquired in a company on or after 16 March 2015, and that company has carried forward or reasonably expects to carry forward a balance of assessed loss or expects to have an assessed loss in respect of the year of assessment during which the interest is acquired, that exceeds R50million.
Where a South African resident pays an aggregate amount exceeding R5million to a foreign insurer and any amount payable to a beneficiary is determined mainly with reference to the value of particular assets or categories of assets held by, or on behalf of, the foreign insurer.
An arrangement in terms of which a local tax resident pays more than R5 million to an offshore insurer and the return of the insurance policy is determined mainly with reference to the value of particular assets held by the insurer.
Taxpayers must notify SARS of any reportable arrangements 45 business days from the date that a transaction qualifies as a reportable arrangement, after which the taxpayer will be regarded as a participant in the reportable arrangement.
SARS may levy penalties if parties fail to report such arrangements. Where the promoter of the arrangement fails to report the arrangement the penalty amount is R 100 000 for each month while the arrangement remains unreported, subject to a maximum of 12 months. In the case where there is no promoter or if the promoter is a non-resident, and a participant fails in his obligation to report the arrangement, the penalty amount is R 50 000 for each month.
It should be noted that if the anticipated tax benefit for the participant exceeds R5 million the penalty is doubled and if the tax benefit exceeds R 10 million the penalty is tripled. Up to R100 000 of the penalty may be remitted in the case of a first incidence of non-compliance or non-compliance that endures for less than 5 business days.
However, if a participant obtains a written statement from the promoter or any other participant confirming the arrangement was reported, then the participant need not report the arrangement and also where the aggregate tax benefit which may be derived by all the participants to the arrangement is less than R 5 million.
Contact your tax adviser for a detailed list of reportable arrangements or if you help to assess your arrangements and to report any arrangements.
This article first appeared on gt.co.za.