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TAX LAW

Our specialist lawyers and practitioners provide clear and practical business solutions. Our practice provides advice on a wide variety of tax and exchange control matters, both in the local and international context.

  • Tax advisory
  • Advanced tax rulings
  • Voluntary disclosure programme
  • Tax management advisory
  • Tax dispute resolution
  • Independent tax reviews and due diligence
  • International tax advisory
  • Tax dispute resolution
  • Exchange control
  • Indirect tax consulting
  • Tax training
  • Customs and Excise

Creditor’s Voluntary Liquidation (“CVL”) Outstanding Taxes

 

We provided an opinion concerning the recoverability of the outstanding tax debt due by a tax payer.
The tax payer was placed under liquidation in terms of a court order. The winding up order was as a result of an urgent winding up application launched by its holding company. The liquidation proceedings were not opposed.

The holding company’s representative unsuccessfully objected to the amended first and final liquidation and distribution account of the tax payer. In terms of the letter from the Master of the High Court, declining the tax payer’s objection, the tax payer was afforded a period of 30 days within which to launch a court application contesting the Master’s decision.

 

Additional Tax Assessment

 

The issue in dispute related to the additional assessments raised in terms of Section 92 of the Tax Administration Act 28 of 2011 (“the TAA”) in respect of the taxpayer’s 2005 to 2008 years of assessment.

 

When the original assessments were raised, no adjustments were made to the pricing in respect of certain loan transactions between the tax payer and a number of its African Subsidiaries (“loan transactions) in terms of Section 31(2) of the Income Tax Act 58 of 1962 in circumstances where interest had been levied by the tax payer on the loans at a less than an arm’s length price.

 

During 2013, additional assessments were raised in relation to the taxpayers 2005 to 2008 years of assessment after deciding that the consideration in the loan transaction should be adjusted in terms of Section 31(2) of the Income Tax Act. A view was taken that the loan transaction constituted a “service”, being the granting of financial assistance; the service was supplied in terms of an “international agreement”, being an agreement between a resident (ie the taxpayer) and persons who were not resident in South Africa (ie the African Subsidiaries and the pricing of the loan transaction was not at arm’s length).

 

TAX Avoidance Arrangements

 

Five taxpayers were subject of an audit. The five taxpayers were previously the directors of Company A. Company A was appointed to provide advice to Company B under letters of engagement and a contract signed on 20 March 2007 and 07 March 2008 respectively. The services rendered related to structured finance arrangements in respect of a mining consolidation of which Company B had acquired a right. The remuneration was based on a success fee or upon successful outcome of the transaction.

 

Company A did not invoice Company B for the services rendered in respect of the work undertaken, instead the five taxpayers sold their shares in the company for an amount with a par value equal to the success fee. The five taxpayers entered into a sale of shares agreement during August 2008 and February 2009. Two payments were made to the taxpayers.

 

Thereafter, the former shareholders/directors (taxpayers) formed another company and continued with the same trade, from the same premises and continued to offer services to Company B.

In this regard, we were instructed to advise on whether the aforementioned transaction is in line with the principles of part IIA of the Income Tax Act 58 of 1962 dealing with impermissible Tax avoidance arrangements.

 

OPINION

 

Shares in a share block company.

 

We were instructed to opine on whether or not a share in a share block company, as defined in Section 1 of the share Blocks Control Act 59 of 1980 can qualify as an equity share as defined in Section 1(1) of the Income Tax Act, 58 of 1962

 

In this matter, we were to specifically consider the following issues:

  • Whether the land use rights necessarily associated with shares held in a share block company deprive that share of its status as an equity share; and
  • If not, whether the associated land use constitutes a consideration other than an equity share for the purposes of section 42(4) of the income Tax.
  • In responding to the two questions posed for consideration, we made the following findings:
  • The land use rights which are necessarily associated with shares held in a share block do not deprive that share of its status as an equity share; and
  • The associated land use does not constitute a consideration other than an equity share for the purposes of section 42(4) of the Income Tax Act.

 

Imposition of Export Taxes

 

We provided an opinion on whether South Africa can impose duties on exports or whether such a measure will contravene South Africa’s international obligations under various international trade agreements and partnerships.

 

If, as an example, certain third world countries are given an exemption from the application of the tax for a period of time, then Article 5(2) obliges South Africa to afford the same exemption to the SADC member states in order to ensure that they are treated no less favourably than the third world countries to whom the exemption applies. Therefore, if South Africa gives a concession for 6 years to EU member states under a general export tax on products, it will be required to afford the same exemption to the SADC member states.