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Transfer Pricing adjustments leading to withholding tax obligations

Thursday, 05 February 2015   (0 Comments)
Posted by: Author: KPMG South Africa
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Author: KPMG South Africa

In terms of Section 31(3) of the Income Tax Act, any adjusted amount for transfer pricing and thin capitalisation purposes, prior to 1 January 2015, constituted a deemed loan.

Should this amount, plus interest deemed to have accrued on it, not have been repaid to the taxpayer by the relevant non-resident connected person by 31 December 2014, the outstanding "deemed loan” must "be deemed to be a dividend consisting of a distribution of an asset in specie, that was declared and paid by that resident to that other person on 1 January 2015”. Such deemed dividend will be subject to Dividends Withholding Tax ("DWT”), at a rate of 15% for which the SA resident taxpayer will be liable as per section 64EA(b).

Such DWT must be paid to SARS in terms of Section 64K(1)(b) by the last day of the month, following the month during which the dividend is paid. Therefore the DWT on deemed dividends arising from deemed loans in place at 31 December 2014 must be paid to SARS by the end of February 2015.

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