South Africa: Far-Reaching Tax Amendment Bills Published For Comment

Last Updated: 31 July 2012
Article by Mark Linington

Earlier this month the proposed draft Taxation Laws Amendment Bill 2012 (TLAB) and Tax Administration Amendment Bill 2012 were published. It has been several years since South Africans have seen such a volume and scope of proposed tax amendments.

Many of the proposed amendments are specifically aimed at cross-border activity, both incoming (affecting foreign investment entities and headquarter companies) and outgoing (including changes to the controlled foreign companies (CFC) provisions, participation exemption and the exit charge).

There are also far-reaching amendments that will affect both domestic and cross-border activity, including a new definition of equity share; new rules for distinguishing between debt and equity; and new rules for hybrid instruments.

Tax rate for foreign companies (Appendix I)

As anticipated, the tax rate applicable to foreign companies has been aligned with the rate applicable to local companies, being 28%, with effect from 1 April 2012.

Equity share definition (section 1)

The new definition of "equity share" is proposed to be any share in a company unless:

  • the amount of any dividend or foreign dividend in respect of that share is based on or determined with reference to the time value of money;
  • the issuer of that share is obliged to redeem that share in whole or in part; or
  • that share may at the option of the holder be redeemed in whole or in part.

The term equity share is used in many sections of the Income Tax Act. The implications of this new definition are therefore far-reaching and could have a number of unintended consequences, including:

  • dividends on ordinary shares being taxed as interest in the hands of the holder, when in the case of an employee share incentive scheme - in order to provide liquidity - an employer gives an employee the option to sell shares back to the issuing company after a certain period; and
  • triggering section 45 de-grouping charges when a company is no longer part of the same group of companies due to shares ceasing to be equity shares because the holder of the share has an option to return the share to the issuer or, alternatively, the issuer has an obligation to redeem a share after a number of years.

Foreign investment fund managers (section 1)

From 1 January 2013, the use of a licensed South African financial services provider will not result in foreign investment funds being effectively managed (and hence tax resident) in South Africa, provided the foreign investment fund meets certain requirements. The foreign investment fund must be an entity:

  • that is incorporated outside South Africa;
  • that is similar to a collective investment scheme;
  • whose sole assets consist of cash or listed financial instruments;
  • where no more than 10% of the shares, units, etc. are held by South African residents; and
  • that has no employees, directors or trustees that are engaged in the management of the entity on a full-time basis.

This provision appears to be much narrower in its ambit than the related 2012 budget speech by Minister of Finance, Pravin Gordhan.

Foreign tax credits (section 6 quin)

In terms of a proposed amendment to section 6 quat, the partial exemption contained in section 10B(3) for residual foreign dividends (i.e. dividends that do not qualify for any other exemption) will be ignored when calculating the section 6 quat rebate for direct taxes paid in respect of the foreign dividend.

A further amendment provides that the taxpayer may elect to deduct an amount of foreign taxes under section 6 quat. According to the clause-by-clause explanation to the Draft Explanatory Memorandum accompanying the amendment bills, this election is in substitution for electing the section 6 quin rebate.

In terms of the proposed amendment, if foreign tax rebates claimed under section 6 quin by the taxpayer are subsequently refunded to the taxpayer, the rebate claimed is deemed to be an amount of tax that must be paid to the South African Revenue Service (SARS).

Hybrid equity instruments (section 8E)

In last year's bill, section 8E was amended with effect from 1 April 2012. This section deems the dividend to be taxable income in the shareholder's hands. A new category of "hybrid equity instrument" was introduced, which has disastrous consequences for many transactions that fall outside the scope of the perceived abuse areas (dividend funds and the so-called funnel finance schemes).

National Treasury has conceded that this new category is too wide and has consequently proposed that the following be considered:

  • the commencement date be postponed to the years of assessment commencing on or after 1 October 2012;
  • indirect security be removed as a tainting element;
  • the introduction of a definition of "financial instrument" - interest-bearing arrangements and financial arrangements based on or determined with reference to the time value of money;
  • the introduction of an exemption when the issue proceeds are applied directly or indirectly solely for the purpose of acquiring an equity share in an operating company or refinancing intermediate facilities raised for that purpose; and
  • the introduction of a definition of "operating company" - a company that continually provides goods or services; a controlling group company in relation to such a company (holds more than 70%); or a listed company.

Despite these welcomed proposals there are still concerns that the new category of hybrid equity instruments is too wide and will prejudice many arrangements that fall outside the perceived abuse areas.

Third party-backed shares (section 8EA)

Section 8EA was also introduced last year to come into effect from 1 October 2012. The commencement date has been deferred for many taxpayers, depending on when their financial year commences, as the new section will apply from years of assessment commencing on or after 1 October 2012.

The provision is aimed at similar perceived abuse areas as the new class of "hybrid equity instrument" in section 8E and has the same effect of deeming the dividend to be taxable income in the shareholder's hands. It does however have a different focus as it targets shares that have third-party backing as opposed to targeting shares that are backed by interest-bearing arrangements. It therefore has a much wider scope and in many cases the shares will need to be tested under both section 8E and section 8EA.

Various refinements have been proposed to this section, including:

  • the cause for the exercise of the enforcement right or obligation has been widened to now include the non-return of capital (redemption in the case of preference shares);
  • the exemption has been narrowed - it will not apply when the proceeds are used directly or indirectly to acquire shares in an operating company that forms part of the same group of companies as the issuer immediately prior to the acquisition;
  • the permitted uses under the exemption have been expanded to include certain back-to-back preference share arrangements; and
  • the permitted security under the exemption has been expanded to security provided by a controlled group company in relation to the operating company, the issuer or the preference share issuer (in back-to-back preference share arrangements); provided the security exercisable against the controlling group company is of equivalent or greater strength than the security exercisable against the controlled group company.

Reclassifying debt as equity (section 8F)

Wholesale changes are proposed to section 8F that are aimed at creating an artificial distinction between equity and debt.

Section 8F is currently the reciprocal of section 8E. It disallows an interest expense on a hybrid debt instrument, which is defined as a debt instrument that is convertible into shares within three years, or there is a right of conversion exercisable within three years.

This definition will be replaced in its entirety by a much wider definition of "hybrid debt" that will include a loan to a South African company or close corporation when:

  • the borrower is not obliged, or may exercise an option as a result of which it will not be obliged, to repay the debt in full within 30 years of the advance date;
  • the borrower is entitled, or may exercise an option as a result of which it will be entitled to convert or exchange the debt or any part thereof for shares in the borrower or any other company that forms part of the same group of companies as the borrower;
  • the lender is obliged to convert or exchange the debt or any part thereof for shares in the borrower or any other company that forms part of the same group of companies as the borrower;
  • on a balance of probabilities the loan will not be repaid in full within 30 years of the advance date; or
  • the obligation to make payment of the loan or any portion thereof is conditional upon the solvency or the liquidity of the borrower.

When the market value of the borrower's assets is less than ZAR10 million or if the borrower is a bank and the loan constitutes primary share capital or secondary capital as defined in section 1 of the Banks Act, 1990, there is an exclusion applicable.

The hybrid debt will be deemed to be a share in respect of both the lender and the borrower. The borrower will therefore be disallowed an income tax deduction in respect of the interest expense, while the lender will not have to include the interest in taxable income.

This proposed amendment will come into effect from 1 January 2014. The scope is wide and arguably includes all instruments that are repayable on demand or have any back-ranking attributes, including second-tier facilities, mezzanine loans and shareholder loans.

Reclassifying interest as dividends (section 8FA)

The new section 8FA introduces the concept of "hybrid interest", which is interest:

  • not determined with reference to the time value of money;
  • for which the payment is subject to solvency or liquidity of the borrower; or
  • that the borrower is obliged or entitled to settle in shares.

Hybrid interest is deemed to be a dividend in respect of the lender and borrower. For Dividends Tax it is deemed to be an in specie dividend and therefore the borrower company will be liable for Dividends Tax thereon. This new section is only intended to operate when section 8F does not apply.

This proposed amendment will come into effect from 1 January 2014. This section also has wide application and will impact many existing instruments such as index-linked notes and scrip-lending obligations.

Exit charge on ceasing to be a South African resident (section 9H)

In terms of amendments to section 9H, when a person ceases to be a South African tax resident, the person's year of assessment will be deemed to have ended the day before that person ceases to be a South African tax resident.

This is intended to reinforce the principle that a double taxation agreement does not exempt a person from South African capital gains tax (CGT) when there is a cessation of South African tax residence as a result of that person moving its (or his / her) tax residence to another country with which South Africa has concluded a tax treaty.

Companies that cease to be residents, or become headquarter companies; or controlled foreign companies that cease to be CFCs, are deemed to have disposed of their assets to their shareholders. A CGT liability could accordingly arise.

The shareholders are also deemed to have disposed of their shares in a company that is changing its residence, which means that they could also be subject to South African CGT.

In addition, the shareholders are deemed to have transferred the assets immediately back to their subsidiary at market value in exchange for an issue of shares. Presumably the shareholders obtain market value base cost uplift in their shares in a company that changed residence, but this could occur at a CGT cost.

Dividends Tax could furthermore become payable when a resident ceases to be a resident, or becomes a headquarter company.

When individuals cease to be tax resident in South Africa, a CGT implication is also triggered.

The effective date of the amendment to the legislation is 8 May 2012. This retrospective effect could have adverse consequences when a person has, for example, already emigrated, but has not deemed his year of assessment to have ended on the day before he ceased to be resident. He may accordingly not have made provisional tax payments by the requisite date. It remains to be seen how SARS will cater for such instances.

CFCs (various sections of the Income Tax Act and paragraphs of the Eighth Schedule)

Changes to the CFC rules

Although a CFC has a foreign business establishment, if the CFC receives royalties in respect of "tainted" intellectual property (as defined in section 23I), the royalties will not benefit from the foreign business establishment exemption, even where the CFC actively develops the intellectual property.

Effective management in respect of high-taxed CFCs (section 1)

In order to encourage investment in Africa by South African companies, relief has been provided in circumstances when the South African parent company provides management assistance to the subsidiary (ie when the foreign subsidiary is at risk of being regarded as effectively managed in South Africa, and therefore tax resident in South Africa), and if certain other requirements are met, as follows:

  • the foreign subsidiary is a CFC as defined;
  • the foreign subsidiary is subject to an aggregate effective tax rate of 75% of the South African tax rate; and
  • the foreign subsidiary has a foreign business establishment.

This amendment comes into effect on 1 January 2013. While this provision will be welcomed by taxpayers, it is an unusual development in terms of international practice. It thus creates a risk in respect of South African companies triggering tax charges when they cease to be South African tax residents as a result of this provision.

Transfer pricing relief for high-taxed CFCs (section 31(6))

It has been proposed that, with effect from 1 January 2013, South Africa's transfer pricing rules will not apply to loans granted, or royalties charged, by South African companies to a CFC. The CFC must be at least 10% directly owned by the relevant South African company, taxed at an aggregate effective rate of 75% of the South African corporate tax rate, and have a foreign business establishment.

This amendment is partly proposed to avoid problematic debates regarding whether or not interest-free or low-interest loans to subsidiaries that are unable to pay higher rates of interest can be treated as quasi-equity under transfer pricing rules.

This is again an unusual approach to the issue. Generally countries deal with this in their transfer pricing rules by stipulating criteria that, if applicable, will allow the loans to be treated as quasi-equity and will thus enable the creditors to avoid having interest imputed to them under transfer pricing rules.

Headquarter company amendments (sections 9I, 20C, 31(5) and 35)

The proposed legislation makes it clear that dormant or shelf companies can qualify as headquarter companies, provided the company has never engaged in any trade nor held assets exceeding ZAR50 000.

In addition, relief in respect of back-to-back intellectual property payments has also been proposed, such that royalties paid by a headquarter company to its shareholder (which holds at least 10% of the equity shares and voting rights in the headquarter company) will not be subject to South Africa's withholding tax. Net losses in respect of intellectual property payments will be ring-fenced.

The amendments are proposed to take effect from 1 January 2013.

Debt restructuring (section 19 and paragraph 12A of the Eighth Schedule)

The tax effects for debt restructuring are to be rationalised. The current legislation contains the tax effects in six different provisions that sometimes overlap and for which the sequence of application is not always clear. It is proposed that the existing provisions be replaced by the following two provisions:

Section 19 in respect of the following income tax effects for the amount of debt that is forgiven:

  • firstly, to the extent that the forgiven debt funded the acquisition of trading stock and such stock is still on hand, the cost or tax-carrying value of the stock on hand is reduced. This will give rise to taxable income in due course as and when the stock is sold;
  • secondly, to the extent that the remaining forgiven debt funded other expenditure for which income tax deductions or allowances were claimed, the assessed loss is reduced; and
  • lastly, to the extent that the remaining forgiven debt funded other expenditure for which income tax deductions or allowances were claimed, there is a deemed recoupment of such deductions and allowances. As is currently the case, this item will give rise to cash tax payable as a result of the debt restructuring, which will further exacerbate the financial difficulties and debt restructuring for the borrower. It would be pragmatic of National Treasury to defer this tax cost until the borrower has traded back into a solvent and liquid position.

Paragraph 12A of the Eighth Schedule provides the following CGT consequences for the amount of debt that is forgiven:

  • firstly, to the extent that the forgiven debt funded the acquisition of capital assets that are still on hand, the base costs of the assets are reduced. This will give rise to capital gains in due course as and when the assets are disposed of; and
  • secondly, to the extent that the remaining forgiven debt funded the acquisition of capital assets that are still on hand, the balance of the borrower's capital loss is reduced. There are no further CGT effects for the debt forgiveness.

A notable and welcome exclusion is a capital gain for any balance of the portion of the debt forgiven (per the current paragraph 12(5) that is being repealed).

Dividends treated as income / proceeds on the disposal of certain shares (section 22B and paragraph 43A of the Eighth Schedule)

The 45-day minimum holding period for obtaining exempt dividends has been deleted on the basis that the purpose of the 45-day holding period was firstly impractical, and secondly the sellers of the dividend may also realise ordinary revenue or a capital gain when disposing of the dividend so the tax in any event is not lost at a shareholder level.

Limitation of allowances on assets acquired from connected persons (section 23J - repealed)

Section 23J currently limits allowances on depreciable assets that were held by a connected person within a period of two years of acquiring the assets.

National Treasury has proposed that section 23J be repealed as the arbitrage opportunity for a connected person's depreciable assets sales has been greatly reduced by the increase in the CGT inclusion rate. In addition the adoption of domestic transfer pricing principles is to be considered for the 2013 legislative cycle.

The repeal of section 23J will be effective from 1 January 2013, and will apply in respect of depreciable assets acquired by a taxpayer on or after that date.

Deferral of interest and royalties deduction (section 23L)

In terms of the new section 23L, a tax deduction for interest and royalties will be deferred when it:

  • does not constitute "income" received by or accrued to the lender. This excludes net income of a CFC that is imputed into the taxable income of a resident; and
  • is not paid and has not become payable.

The tax deduction is deferred until the interest or royalties are paid or become payable. This amendment comes into operation for years of assessment commencing on or before 1 January 2013.

"Income" is defined as gross income less exemptions. As interest received by or accrued to foreign lenders is specifically exempt, most foreign loans will need to be considered. Loans from exempt South African lenders such as pension funds will also need to be considered.

The biggest impact of this amendment will probably be on foreign shareholder loans, although it will also apply to third party mezzanine loans when the interest payments are deferred.

Leveraged buyouts (sections 23K and 24O)

Debt pushdown structuring consists of acquiring shares followed by section 45 intra-group transfers of business to offset the debt against the operational assets and cash-flows. Section 23K requires pre-approval for the deductibility of the interest incurred as a result of debt push-down structuring.

The new section 24O allows a tax deduction for interest incurred on borrowings raised to fund the acquisition of 70% or more of the shares of the target company. This is a welcome development as it is aimed at increasing the ease of acquisitions.

The section 24O amendment will have limited application for private equity funds as the bidding company is normally a local investment company that only receives dividend income and therefore has no taxable income against which it can offset the deduction.

Section 23K is being amended to require pre-approval for a transaction effected under the new section 24O.

Currency rules for intra-group exchange items (section 24I)

Certain amendments to section 24I have been proposed to align the taxation of unrealised currency gains and losses in respect of related-party transactions, with International Financial Reporting Standards (IFRS), in terms of which the taxation of such currency gains and losses will continue to be deferred until realisation. The new regime is applicable to years of assessment commencing on or after 1 January 2013.

The Draft Explanatory Memorandum notes that the new IFRS requirements that are to be introduced into section 24I are broader than the rules that are currently applicable, and should therefore bring about further relief in the context of exchange differences arising in respect of debts between related parties.

The current deferral mechanism that applies in respect of exchange differences arising in relation to loans incurred to fund certain types of capital expenditure, when the qualifying capital asset has not yet been brought into use, is to cease from 1 January 2013. Any unrealised exchange differences will be deemed to have been realised on the last day of any year of assessment ending after 1 January 2013.

The Draft Explanatory Memorandum also makes reference to the abandonment of the spreading provision that is currently applicable to certain types of related-party loans entered into prior to 8 November 2005. It is also noted that all unrealised exchange differences applicable in respect of these loans are also to be deemed to have been realised when the new regime comes into effect on 1 January 2013.

The TLAB does not appear to make any provision for the abandonment of the spreading provision and the proposed deemed realisation, but this is expected to change when the next draft of the TLAB is prepared.

Assets acquired and disposed of in the same foreign currency (section 24I and paragraphs 43(1) and 43(4) of the Eighth Schedule)

According to the Draft Explanatory Memorandum, the current simplified method for calculating capital gains and losses in respect of assets acquired and disposed of in a single foreign currency will be retained for natural persons and non-trading trusts, but will fall away for companies and trading trusts, that "will be subject to currency capital gain or loss in line with underlying economics".

It is proposed that, in order to calculate currency capital gains and losses, companies and trading trusts that acquire an asset in a currency other than South African Rands, and dispose of that asset in the same foreign currency, must translate the acquisition price into South African Rands, using:

  • the average exchange rate for the tax year during which the expenditure was incurred, or
  • the spot rate on acquisition date; and
  • translate the disposal price into South African Rands at the average exchange rate for the tax year in which that asset was disposed of, or at the spot rate on the disposal date.

Fair value taxation in respect of financial instruments (section 24JB)

In respect of financial instruments, the rules pertaining to income tax and financial accounting have completely diverged. This divergence has proven to be a challenge for both taxpayers and SARS alike.

To simplify compliance and enforcement, certain companies that operate under IFRS will be required to determine their taxable income in respect of certain financial instruments in accordance with the mark-to-market regime required by IFRS. This will impact authorised users as defined in section 1 of the Securities Services Act 2004, and any bank, branch, branch of a bank or controlling company as defined in section 1 of the Banks Act.

Taxpayers subject to the new system will be required to substitute their method of taxing financial assets and financial liabilities from a trading stock / capital gain approach to an IFRS approach.

To accomplish this shift with minimal disruption, it is proposed that covered persons perform a transitional calculation at the end of the year of assessment immediately before the new system comes into effect. Under this transitional calculation, taxpayers entering the new system will have to determine the net value of all financial assets and liabilities subject to fair value reporting as determined above. This aggregate amount will then be compared to the tax cost of all trading stock or capital assets within the financial assets category, reduced by the face value of all financial liabilities.

The above difference between the net IFRS balance sheet calculation and the net tax balance sheet calculation will then be added in, or subtracted from, taxable income. Because these amounts may be large enough to create cash-flow problems, the net difference will be added to, or subtracted from, taxable income over a four-year period.

This new section will apply to years of assessment ending on or after 31 December 2012.

Real Estate Investment Trusts (definition of REIT in section 1 and section 25BB)

The Property Loan Stock Association has been lobbying Treasury for several years to introduce a Real Estate Investment Trust (REIT) tax regime. This regime will bring the country in line with international norms and put an end to the tax uncertainty associated with property loan stocks. Given the proposed extended hybrid debt instrument regime, this development became critical.

The introduction of the REIT tax regime is to be welcomed as a step towards international standardisation, proper regulation by the JSE, and the alignment of the key property investment structures in South Africa (property unit trusts and property loan stocks). In broad terms:

  • a REIT will not be subject to CGT, but will be taxed on a revenue basis as regards financial instruments;
  • qualifying rental distributions will be treated on a look-through basis, ie treated as deductible expenditure (not a dividend) for the REIT and taxable as rental income in the hands of the investor; and
  • investors will only be subject to CGT on disposal of their shares in the REIT.

The effective date of these changes will be gazetted.

Lowering the qualifying interests requirement (section 42)

Asset-for-share transactions qualify for income tax roll-over relief if the transferor holds a qualifying interest in the transferee company immediately after the disposal. In the case of an unlisted company acquiring assets from a transferor outside the group of companies it forms a part of, the qualifying interest is set at 20% of equity shares and voting rights in the transferee.

National Treasury's proposal to lower the qualifying interest from 20% to 10% is welcomed and will certainly encourage further restructurings.

Deferral of tax consequences pursuant to the assumption of debt

In an asset-for-share transaction, the assumption of debt by the transferee company in part settlement of the purchase consideration triggers proceeds or income (depending on whether the shares are held on capital or revenue account) in the hands of the transferor upon disposal of the equity shares in the transferee. The proceeds or income is however triggered immediately after the acquisition of the transferee shares.

This unfortunate position has now been rectified with the deeming provision causing the proceeds or income to accrue to the transferor on the date of disposal.

Listed companies facing unbundling predicament (section 46)

Unbundling transactions qualify for income and Dividend Tax relief if less than 20% of the unbundled company shares are held by disqualified persons or connected persons in relation to disqualified persons.

A "disqualified persons" is defined as, essentially, non-residents and tax-exempt entities. It is proposed that the threshold be lowered to 10%, which will certainly restrict many listed companies from concluding unbundling transactions given the large holdings by pension funds such as the government pension fund.

Cross-border reorganisations (sections 42 - 47)

Tax relief will now apply to foreign reorganisations (including asset-for-share; amalgamation; intra-group; unbundling; and liquidation transactions that involve a foreign party) that are entered into on or after 1 January 2013. In order to benefit from this relief the various requirements of each section must be met; some of which are more onerous than the previous legislation.

The most notable change is that relief in terms of section 45 will now apply on the sale of equity shares in a foreign company. This relief will only apply when, immediately before and at the end of the day of transaction:

  • the transferor and transferee forms part of the same group of companies (70% shareholding); and
  • the transferor is a CFC in relation to the same group of companies or that transferee is a resident or is a CFC in relation to the same group of companies.

As in the context of domestic section 45 transactions, the "same group of companies" requirement must be met for six years after entering into the intra-group transaction. This section will not apply when the consideration received by the transferor constitutes equity shares.

Interest-withholding tax (sections 37J-N)

As expected, when the interest-withholding tax is implemented on 1 January 2013, the interest-withholding tax rate will be leveraged at the rate of 15% (rather than the originally proposed 10%).

The tax must be withheld when the interest is paid or becomes payable. If the interest is paid in foreign currency, it must be translated to South African Rands at the spot rate on the date that the payer withholds or deducts the withholding tax.

Interest arising from any government debt (such as a tax refund) will be exempt from the interest-withholding tax.

CFCs are currently exempt from the withholding tax on interest (and royalties), but these exemptions will be removed.

Royalty-withholding tax (sections 49A-G)

New sections 49A to 49G are proposed to replace the section 35 royalty-withholding tax provisions. The key changes, to be effected on 1 January 2013, are:

  • an increase in the tax rate from 12% to 15% (subject to double-tax treaty relief), which is specified as a final tax;
  • an extension of exemption (in addition to CFCs) to individuals physically present in South Africa for at least 183 days in the preceding year; and / or persons carrying on business through a permanent establishment in South Africa at any time in the previous year (previously the exemption only applied if the royalty was effectively connected with the permanent establishment in South Africa);
  • the change of date of liability for withholding tax from the earlier of receipt or accrual by the non-resident, to the date that the royalty is paid or becomes payable; and
  • an extension of the payment date to the end of the month following the date of liability for withholding tax.

Interestingly, it appears that the statutory right of recovery from the recipient of the royalty has not been carried across to the new sections.

Participation regime (paragraph 64B of the Eighth Schedule)

The CGT exemption in respect of the disposal of foreign equity shares will only be available when the disposal is made to an independent foreign person. The intention is that the exemption will not apply when shares are received as consideration.

The 18-month holding requirement has been discarded in respect of headquarter companies, which will be relieved from CGT on disposals of qualifying shares.

It appears that the amendments to paragraph 64B of the Eighth Schedule have not been thoroughly considered, and the paragraph still contains references, for example, to secondary tax on companies (STC). We trust that there will be substantial changes to the proposed paragraph before implementation.

Additional amendments

There are also wide and sweeping proposed changes to annual fair value taxation of financial instruments in respect of financial institutions (sections 24J(9) and 24JB); market-to-market taxation of long-term policyholder funds (sections 29S and 29B); and enhanced regulatory and tax co-ordination of short-term insurance reserves (section 1 - gross income, sections 28(2),(5), (6) and (9)). These provisions will have a fundamental impact on specialised businesses and should be carefully considered.

Tax Administration Amendment Bill 2012

National Treasury's media statement explains that this legislation is intended to introduce amendments in respect of the administrative provisions of tax legislation. Whereas for the most part the proposed changes align the Income Tax Act with the Tax Administration Act, one should, however, be aware that many of these alignments contain substantive elements in that the commercial treatment of a taxpayer will be different in terms to that of the Tax Administration Act.

The amendment of various interest and penalty provisions to be aligned with the Tax Administration Act, for example, results in a new interest and penalty regime as regards these taxes, which regime is simpler and more consistent among taxes, but typically remission of interest and penalties becomes harder to obtain.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions