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South Africa Adds To Reportable Tax Arrangements

Thursday, March 19, 2015

On March 16, the South African Revenue Service (SARS) issued a final notice regarding the list of reportable arrangements under the Tax Administration Act (TAA), 2011.

The relevant section of the TAA provides that every company or trust which derives, or will derive, any tax benefit in terms of a reportable arrangement must report that arrangement to SARS within 60 days of the date that any amount is first received by any person under that arrangement. Reporting of an arrangement does not mean that SARS approves of it, but does enable the agency to evaluate the arrangement from an anti-avoidance point of view at an early stage of its implementation.

Until now, arrangements have been reportable if they have one of three characteristics: where the calculation of interest and other finance charges in an arrangement is wholly or partly dependent on the tax treatment of that arrangement; where provision has been made for the variation of such finance charges should "the actual tax treatment differ from the anticipated tax treatment;" and where the potential amount of the variation contemplated in such a provision, referred to above, exceeds ZAR5m (USD402,750).

Another category of reportable arrangements had been contemplated in the legislation. It was confirmed these would be set out in subsequent notices from SARS, focusing on arrangements that could have the effect of avoiding or postponing liability to, or reducing the amount of, taxes on income.

The final notice now issued by SARS includes a number of additional arrangements. These arrangements include those involving fees in excess of ZAR5m, which are, or may become, payable by a person who is a South African resident to a non-resident insurer; and those in which a resident makes contributions or payments to, or acquires a beneficial interest in, a trust that is not a resident where the amount of the contributions, payments, or the value of the interest exceeds, or can be expected to exceed, ZAR10m.

The new list also contains any arrangement in which a company buys back shares from one or more shareholders for an aggregate amount of at least ZAR10m, if that company has issued or is to issue any shares within 12 months of entering into the arrangement; and where controlling interest is acquired in a company that has carried forward, or expects to carry forward, a balance of assessed losses exceeding ZAR50m.