The Taxation Laws Amendment Bill, 2013 issued on 24 October 2013
(following the draft Bill issued 4 July 2013) proposes transfer
pricing relief for loans with equity like features which have been
extended by a South African company to its non-resident subsidiary,
provided certain requirements are met.
Generally the transfer pricing provisions apply to any loan
granted by a South African tax resident to a foreign connected
party regardless of the substantive character of the loan. However,
South African companies often capitalise their offshore operations
with loans which resemble equity like characteristics in that the
loan bears very little or no yield and are deeply subordinated with
long-term or indefinite maturity dates.
The Bill proposes that transfer pricing relief should be
extended to outbound loans which clearly resemble equity. It is
intended that a debt owed by a foreign company to a South African
company will not be subject to South African transfer pricing
provisions provided that the following requirements are met:
The creditor must be a South African tax resident company;
That creditor or any company that forms part of the same group
of companies as that creditor must hold at least 10% of the equity
shares and voting rights directly or indirectly in the foreign
company (i.e. the debtor);
The loan must be perpetual or be non-redeemable within a period
of 30 years from the date the loan is incurred; and
The full redemption of the loan is legally conditional upon the
solvency of the foreign company.
A loan that meets the above criteria is in substance exposed to
the same economic risk as equity and thus poses little or no risk
to the South African tax base if interest is under-charged and
therefore will not be subject to the South African transfer pricing
The proposed amendment will apply in respect of years of
assessment commencing on or after
1 April 2014.
Should you require assistance to ensure that new or existing
loans have been adequately structured to comply with the proposed
requirements and qualify for this relief, please contact on of our
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.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Effective collaboration amongst government agencies, automation of processes and capacity building by tax authorities have always been identified by stakeholders as strategies for achieving an efficient tax system.
In response to information provided by FIRS, NSE has sent letters to publicly listed companies, who were purportedly identified by FIRS as non-compliant.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).