2010 Tax Amendments
12 November 2010
Posted by: Author: Steve Pinnock
2010 Tax Amendments
The annual round of legislative tax amendments have come and gone, in the form of the Taxation Laws Amendment Bill and the Voluntary Disclosure Programme and Taxation Second Amendment Bill.We take a closer look at some of the changes taxpayers can expect.
Voluntary Disclosure Programme (VDP)
To encourage taxpayers to rectify outstanding noncompliance in respect of their tax affairs, a VDP has been established.This amnesty applies to taxpayers with defaults (incorrect, inaccurate or non-submission of information or the adoption of a tax position) which results in incorrect assessments or tax payable or refunds due by the Commissioner. Only defaults occurring prior 17 February 2010 qualify for relief.
The VDP covers all tax acts administered by the Commissioner, who is prevented from pursuing criminal charges, and grants relief from penalties, additional tax and interest.The relief does not extend to late filing or late payment penalties imposed under s75B of the Income Tax Act (administrative penalties).The VPD is intended to run for a fixed period of time, and the start and expiration dates will be announced by way of notice in the Gazette.
Employer-provided motor vehicles
The monthly taxable value of an employer-provided motor vehicle is increased from 2.5% to 3.5%.The 3.5% will also apply to additional vehicles.This is reduced to 3.25% if the vehicle is subject to a maintenance plan.The determined value now includes VAT.
Co-ordination with company law reform
Numerous amendments to the Income Tax Act are introduced in anticipation of the new Companies Act becoming effective (expected 1 April 2011).Most importantly the introduction of the new contributed tax capital and the replacement dividend definitions and the section 40C ‘share issues for no consideration’ have been brought forward and come into operation on 1 January 2011.Old accounting concepts of equity share capital, share premium and profits and reserves are removed to be aligned with the new contributed tax capital definition and equity share definition.
S24JA of the Income Tax Act is inserted to cater for three common Islamic-compliant financing products.The new rules seek to treat these products as interest-bearing products for tax purposes, by deeming certain premiums and repayments to be interest for the purpose of s24J.The new s24JA canvasses two financing products, the murabaha (similar to an instalment sale), and diminishing musharaka (similar to a finance lease) and an investment deposit product (mudaraba).Returns on the mudaraba qualify for the interest exemption for natural person investors.
Transfer pricing and thin capitalisation
The transfer pricing and thin capitalisation rules are amended to modernise and bring them into line with international standards (OECD guidelines).The thin capitalisation rules will no longer rely on fixed capital, rather the arm’s length standard will apply to determine what is considered excessive financial assistance.Taxpayers are now required to apply section 31 in determining their taxable income, instead of waiting for Commissioner to make an adjustment.
A headquarter company (HQ-Co) regime is introduced to encourage investors to use SA as a location for intermediate holding companies.HQ-Cos may qualify for certain benefits, including exemption from CFC rules, exemption of dividend distributions, thin capitalisation and transfer pricing exclusion on back-to-back loans, and CGT exemption on disposal of shares in the HQ-Co.This relief is in addition to the normal relief measures applicable to holding companies (i.e. the participation exemption).
Regional investment funds
This initiative is aimed at shielding foreign investors in funds from SA tax arising as a result of the activities of the fund or its fund managers.Essentially, the activities of the entity will not be automatically ascribed to the investor in determining whether that qualifying investor has a permanent establishment in SA.
Definition of foreign dividend
The new definition of foreign dividend is now reliant on whether the amount distributed by a foreign company is treated as a dividend in terms of the income tax law (alternatively company law) of the country where that foreign company targets, for example, certain hybrid instruments of foreign jurisdictions that treat such distributions as interest.
Withholding tax on interest
A 10% withholding tax on interest is to be introduced from 2013 in respect of interest received by or accrued to any foreign person (excluding CFCs or persons liable to normal tax on the interest).Several exemptions will apply, including interest on government, listed or bank instruments, import financing, etc.
CGT relief for the termination of residential entities
The rules introduced in 2009 are replaced to cater for a broader range of scenarios, and they are extended to 31 December 2012.The new rules also cater for multi-tier structures, but each entity must also be terminated and the residence must ultimately be transferred to one or more of the natural person occupants.
Source: By Steve Pinnock (TaxTALK)