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FAQ - 14 June 2017

14 June 2017   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

1. Can SARS collect taxes even if there is a dispute?

Q: I filed a tax return and the expenses were disallowed. I filed a NOO and suspension of payment. The suspension was disallowed due to the NOO still not being finalised. Now SARS keeps sending final demand, they want my client to pay in and argue later. How do I suspend payment until this case is resolved?

A: The Tax Administration Act enables SARS to collect the tax debt even if it is under dispute and the taxpayer would only be able to prevent that if a suspension of debt request was made.  In terms of the Tax Administration Act an objection doesn’t suspend the obligation to make payment – the taxpayer must request suspension.  See section 164.  We accept that when you say "a noa was filed with suspension of payment” you actually mean that a request under section 164(2) was made. 

The effect of such a request is that SARS, during the period commencing on the day that SARS received a request for suspension and ending 10 business days after notice of SARS' decision or revocation has been issued to the taxpayer, may not take recovery proceedings unless SARS has a reasonable belief that there is a risk of dissipation of assets by the person concerned. 

In essence, approval of the suspension request is not required and SARS can’t start collection procedures where they have not responded to the request.  We however, suggest that the matter be taken up with SARS as SARS may also, incorrectly so, proceed to appoint a third party (such as a bank or employer). 

2. What are the corporate tax implications for interest free loans between unrelated parties?

Q: Company A will loan Company B an amount interest free to enable Company B to grow their business while Company A will get BBBEE points. The loan must be repaid in 3 years and will not generate interest for Company A. What are the implications of this transaction?

A: Judge Froneman in CSARS v RM Woulidge said, "as long as the capital remains unpaid the failure to charge interest represents a continuing donation…”  At issue before the court then was section 7 of the Income Tax Act.  SARS recently caused the Income Tax Act to be changed and has introduced section 7C into the Act.  It deems a donation to arise when an interest free loan is made to a trust by a person connected to the trust (under certain circumstances). 

With regard to loans to other companies, particularly were it is done to obtain BBBEE points, it is generally accepted that the interest free loan doesn’t actually result in a donation for donations tax purposes. 

We accept that the parties (the companies) are not connected persons in relation to each other and are all residents of the RSA.  You are then correct that section 64E(4) doesn’t apply when the loan is made by one company to another – see section 64E(4)(a)(i)(aa). 

Whilst the Income Tax Act deals with loans made between connected persons where one of the persons is not a resident of the RSA, the so-called transfer pricing rules, it doesn’t have similar rules where the parties are RSA residents. 

The only other consideration is then whether there is an impermissible avoidance arrangement.  The parties may well be able to prove that reasonably considered in light of the relevant facts and circumstances, obtaining a tax benefit was not the sole or main purpose of the avoidance arrangement.

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.


 

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